7 September 1999 External T.I. 9920665 - RETIREMENT BENEFITS PAID UNDER AFRAM

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: Taxation of Early Retirement Benefits under Atlantic Fisheries Restructuring and Adjustment Measures (AFRAM)

Position: If received by self-employed fishers, taxable under sections 9 and 28; otherwise taxable under subparagraph 56(1)(a)(vi).

Reasons: Consistent with prior opinions. The delivery mechanism does not change taxing status.

TO BE FAXED: 954-4956
Gabriel C. de Sousa
Policy Interpretation Officer						1999-000331
Income Security Programs						W. Antle
Human Resources Development Canada

September 7, 1999

Dear Mr. de Sousa:

Re: Atlantic Fishery Restructuring and Adiustment Measures

This is in response to your emails of July 20, 1999 and August 3, 1999 concerning the taxation of early retirement benefits paid under the Atlantic Fishery Restructuring and Adjustment Measures ("AFRAM").

In our earlier letters, we stated that, in our view, benefits received by self-employed individuals, considered to be earning income from a business, should be reported as business income pursuant to section 9 and section 28 of the Income Tax Act (the "Act"). Payments received by individuals who were not self-employed fishers should be reported as other income under subparagraph 56(1)(a)(vi) of the Act. In your emails, you indicated that the delivery mechanism for the early retirement benefits is through the purchase of annuities from private insurance companies. You are questioning whether the payments are considered to be annuities for income tax purposes, and whether this changes our previous position.

Based on our telephone conversation with Mr. Desjardin of your Department (Antle/Desjardin), our understanding is that the purchase of annuities by the government is merely a funding mechanism for delivering the program. The monthly benefits paid to the fishers are set by the government based on benefits received under The Atlantic Groundfish Strategy ("TAGS"), and current monthly earnings from other sources. Annuities are purchased to fund the estimated payments, and the insurance companies handle the day-to-day administration of the program.

Our comments

Annuity is defined in subsection 248(1) of the Act to include “an amount payable on a periodic basis whether payable at intervals longer or shorter than a year and whether payable under a contract, will or trust or otherwise; ". We do not have enough information to determine if the early retirement benefits would constitute an annuity for income tax purposes. However, regardless of whether the payments meet the annuity definition, our position will not change. Paragraph 56(1)(d) of the Act includes in income "any amount received by the taxpayer in the year as an annuity payment other than an amount (i) otherwise required to be included in computing the taxpayer's income for the year...". As noted in our earlier opinions, amounts received by self-employed fishers are included under sections 9 and 28 of the Act, and would, therefore, not be covered by paragraph 56(1)(d) of the Act. The benefits paid to other individuals could be included in income under either paragraph 56(1)(d) or subparagraph 56(1)(a)(v,i) if they meet the definition of annuity,

Where an amount is taxed under more than one provision, the most specific provision is applied. Subparagraph 56(1)(a)(vi), with section 5502 of the Income Tax Regulations, refers specifically to amounts paid pursuant to an agreement made under section 5 of the Department of Fisheries and Oceans Act. The early retirement benefits paid under AFRAM are paid pursuant to such an agreement. Accordingly, the benefits received by individuals, who were not self-employed fishers, would be included as other income under paragraph 56(1)(a) of the Act regardless of whether they constitute an annuity

Also, your email indicates that the insurance companies may be issuing T5 slips to the recipients of the benefits. In our view, T4A slips should be issued to the fishers because the payments do not represent investment income

We trust that our comments will be of assistance to you.

Yours truly

R. Albert, C.A
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch