31 May 1999 External T.I. 9909715 - SALARY CONTINUATION, 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: Will salary continuation payments after termination of employment qualify as a retiring allowance where pension benefits continue to accrue?

Position: No

Reasons: The amounts paid constitute employment income not a retiring allowance.

XXXXXXXXXX 990971
M. P. Sarazin
Attention: XXXXXXXXXX

May 31, 1999

Dear Sirs:

Re: Termination Package and Retiring Allowance

This is in reply to your letter dated March 25, 1999, wherein you requested a ruling that certain payments under a negotiated settlement agreement between your client and her former employer would qualify as a retiring allowance for purposes of the Income Tax Act (the “Act”).

Comments

In your letter you have outlined an actual fact situation related to a completed transaction. As stated in paragraph 3 of the enclosed Information Circular 70-6R3, the Income Tax Rulings and Interpretations Directorate will only provide rulings with respect to the income tax implications of proposed transactions. Paragraph 22 of Information Circular 70-6R3 states that Revenue Canada tax services offices will consider requests for written opinions on completed transactions. Consequently, we can only provide you with the following general comments which we hope will be of assistance.

The enclosed Interpretation Bulletin IT-337R3, Retiring Allowances describes what is meant by a retiring allowance, the taxation thereof and the circumstances under which a retiring allowance may be transferred without immediate tax consequences to a registered retirement savings plan.

In certain situations, termination packages provide for salary continuation payments for a set period of time, including the continuance of certain benefits, including pension benefits. Generally, an individual who continues to accrue benefits under a registered pension plan will be considered to be an employee for income tax purposes as it is only employees who can accrue benefits under the registered pension plan rules. It is our understanding that if a non-employee accrues pension benefits, the pension plan would become revocable. Thus, in a situation involving salary continuation payments and the continuing accrual of pension benefits in a registered pension plan, the salary continuation payments will constitute income from employment and not a retiring allowance for purposes of the Act.

We trust these comments will be of assistance.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate