6 August 1999 External T.I. 9911145 - RETIRING ALLOWANCE, RETIREMENT

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 certain payments prior to an individual's retirement be considered a retiring allowance for purposes of the Act?

Position: No.

Reasons: The payments relate to employment services provided by the individual for the period immediately preceding the individual's mandatory retirement date.

XXXXXXXXXX						991114
M. P. Sarazin
Attention:  XXXXXXXXXX

August 6, 1999

Dear Sirs:

Re: Retiring Allowance for Purposes of the Income Tax Act (the "Act")

This is in reply to your letter dated April 23, 1999, wherein you requested a tax ruling that certain payments would qualify as a retiring allowance for purposes of the Act.

A long-service employee is required to take mandatory retirement in 15 months. The employee will continue to perform some of her employment duties during this transition period, including the training of a successor. The employer is prepared to pay the employee her regular salary for the next nine months and to pay the remaining six months of salary either in a lump sum or in periodic payments. You request confirmation that the amount paid in respect of the remaining six month period would qualify as a retiring allowance for purposes of the Act.

Comments

Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. The enclosed Information Circular 7O-6R3 describes what is required by the Department before it will issue an advance income tax ruling in respect of specific proposed transactions. However, we can provide you with the following general comments.

The enclosed Interpretation Bulletin IT-337R3 titled 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.

Paragraph 2 of IT-337R3 states that a retiring allowance is defined in subsection 248(1) of the Act to mean an amount received on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service or in respect of a loss of office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal. We note that any payment in respect of a taxpayer's long service with an employer must be made on or after the taxpayer's retirement from an office or employment.

In the above situation, the six months salary (whether paid as a lump-sum or as periodic payments) would, based on the limited information, be considered employment income since it relates to the employment services for the period immediately preceding the employee's mandatory retirement date.

We trust the above comments will be of assistance.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate