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 an amount qualify as a retiring allowance?
Position: Question of fact.
Reasons: Provided our general position. Also clarified the position expressed in paragraph 4(c) of IT-337R3 regarding the timing of a payment.
xxxxxxxxxx 991953
M. P. Sarazin
Attention: xxxxxxxxxx
October 13, 1999
Dear Sirs:
Re: Retiring Allowance
This is in reply to your letter dated July 14, 1999, wherein you requested confirmation that an amount received by XXXXXXXXXX (the "taxpayer") , as a result of the termination of her employment, would qualify as a retiring allowance eligible for the rollover under paragraph 60(j.1) of the Income Tax Act (the "Act")
After twenty years of service with her employer, the taxpayer's employment was terminated as of XXXXXXXXXX. The settlement package provided for the payment of certain amounts in respect of compensation in lieu of notice, pay equity entitlements, overtime entitlements, benefit entitlements and legal fees. In addition, the employer agreed to continue to make pension contributions to its pension plan for the taxpayer until XXXXXXXXXX.
The opinions you seek relate to specific proposed transactions and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. 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. However, we can provide you with the following general comments. Note that for purposes of this discussion we are assuming a loss of employment as opposed to a retirement. The distinction between the two is relevant for some purposes of the Act and if the situation you describe is a retirement, the following comments will not be totally applicable..
As noted in paragraph 2 of Interpretation Bulletin IT-337R3, a retiring allowance is defined in subsection 248(1) of the Act to include an amount received in respect of a loss of employment of the 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.
A payment in respect of a loss of employment will qualify even if the payment is made before the actual termination of the employment relationship. Paragraph 4(c) of IT-337R3 provides general comments with respect to determining the time at which retirement or termination occurs - it does not provide guidelines concerning the date a retiring allowance can be paid with respect to loss of employment. We note that the determination of whether a particular payment qualifies as a retiring allowance is a question of fact.
The Department's position with respect to the payment of an amount relating to statutory notice of termination of employment is presented in paragraphs 3 and 4(c) of IT-196R2. A payment in lieu of earnings for a period of reasonable notice which is made by virtue of the terms of an employment contract (whether implied or explicit) will be treated as employment income and not as a retiring allowance. Requirements of employment standards legislation are terms of the employment contract and a payment relating to the legislation's minimum notice requirement is therefore also a term of the employment contract. Any amounts in excess of the amount relating to the required period of reasonable notice under the employment contract will be considered a retiring allowance for purposes of the Act.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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