1998 Ruling 9833363 - RETIRING ALLOWANCE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:	A)	Would an amount be considered a retiring allowance;
B) Would the employee be entitled to a deduction under paragraph 60(j.1) of the Act;
C) Would the amount be reasonable and deductible for the payer.

Position: A), B) and C) Yes.

Reasons: In accordance with the Act and prior rulings given.

XXXXXXXXXX
XXXXXXXXXX 3-983336
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1998

Dear Sirs:

Re: Request for Advance Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above noted taxpayers. Further to our telephone conversation (XXXXXXXXXX) you provided additional information with respect to the facts and proposed transactions of this ruling request.

DEFINITIONS AND ABBREVIATIONS

In this letter, the following terms have the meanings specified:

"Act" means the Income Tax Act, R.S.C. 1985 (5th Supp.) c.1, as amended to the date hereof, and unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

"Business" means Mr. A's farming business;

"DPSP" (or deferred profit sharing plan ) has the meaning assigned by subsection 248(1).

"Mrs. A" means XXXXXXXXXX, the spouse of XXXXXXXXXX;

"Mr. A" means XXXXXXXXXX;

"Retiring Allowance" has the meaning assigned by subsection 248(1);

"RPP" (or registered pension plan ) has the meaning assigned by subsection 248(1).

"RRSP" (or registered retiring savings plan) has the meaning assigned by subsection 146(1).

RELEVANT FACTS

1. The address of Mrs. A and Mr. A is: XXXXXXXXXX.

2. Mrs. A and Mr. A deal with the XXXXXXXXXX Tax Services Office and file their returns with the XXXXXXXXXX Tax Centre.

3. Mr. A acquired land in XXXXXXXXXX commencing a farm business proprietorship at that time.

4. Mrs. A commenced employment with the Business in XXXXXXXXXX but did not receive any remuneration for her employment due the application of the former subsection 74(3).

5. Mrs. A continued to be employed by the Business until XXXXXXXXXX. Mrs. A has been paid by the Business $XXXXXXXXXX in XXXXXXXXXX and $XXXXXXXXXX in XXXXXXXXXX. These payments represent the only remuneration paid to her since XXXXXXXXXX.

6. In XXXXXXXXXX Mr. A ceased his farm proprietorship.

7. Mr. A intends to dispose all the Business' assets to non-related third parties during XXXXXXXXXX.

8. In XXXXXXXXXX Mrs. A retired from the Business and from the farm business permanently.

9. To the extent that he has not already done so, Mr. A will retire from all farming activities following the final disposition of any remaining capital assets of the Business in XXXXXXXXXX.

10. Mrs. A has no entitlements under any RPP or DPSP as a result of her employment in the Business.

PROPOSED TRANSACTIONS

11. Mr. A proposes to pay to Mrs. A a retiring allowance in XXXXXXXXXX in the amount of $XXXXXXXXXX on or after her retirement and in recognition of her XXXXXXXXXX years of service.

12. Mrs. A proposes to contribute the entire amount of the retiring allowance to a RRSP, under which she is the annuitant, no later than XXXXXXXXXX.

OTHER INFORMATION

13. To the best of your knowledge and that of Mrs. A and Mr. A none of the issues in respect of which rulings are herein requested is:

(a) in an earlier return of Mrs. A, Mr. A or a related person,

(b) being considered by a tax services office or tax centre in connection with a previously filed tax return of Mrs. A or Mr. A,

(c) under objection by Mrs. A, Mr. A or a related person,

(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and

(e) the subject of a ruling previously issued by the Income Tax Rulings and Interpretations Directorate.

RULINGS

Provided the above statement of facts and proposed transactions are accurate and constitute a complete disclosure of all relevant facts and provided the transactions are completed as proposed, we rule as follows:

A. The payment of an amount of $XXXXXXXXXX as described in paragraph 11 above will qualify as a Retiring Allowance and will be included in Mrs. A's income in her XXXXXXXXXX return pursuant to subparagraph 56(1)(a)(ii).

B. Mrs. A will be entitled to a deduction under paragraph 60(j.1) to the extent permitted under that paragraph, upon the subsequent contribution of an amount referred to in Ruling A to a RRSP of which she is the annuitant.

C. For the purposes of section 67, the proposed payment of retiring allowance will be reasonable and will be deductible in computing the Business income for the taxation year of payment.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 of December 30, 1996, issued by Revenue Canada Taxation, and are binding provided the proposed transactions are initiated within six months of the date of this letter.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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