1999 Ruling 992067A - RETIRING ALLOWANCE, FARM OPERATION

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: Would an amount be considered reasonable retiring

allowance?

Position: Yes, given the facts of this case, the amount not exceeding an amount eligible for rollover under paragraph 60(j.1) of the Act to an RRSP is accepted as reasonable.

Reasons: In accordance with guideline provided in Question 10 at the 1992 Prairie Tax Conference Round Table and prior rulings given in similar circumstances.

XXXXXXXXXX 992067

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayers. We also acknowledge the information provided during our various telephone conversations (XXXXXXXXXX).

Our understanding of the facts and proposed transactions is as follows:

Facts

1. Mrs. A and Mr. A currently live at XXXXXXXXXX.

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

3. Mr. A commenced farming near XXXXXXXXXX.

4. In XXXXXXXXXX, Mr. A married Mrs. A and she immediately commenced providing farm services to Mr. A's farm.

5. Mrs. A's compensation from Mr. A for her services has been as follows:

XXXXXXXXXX.

The wages to be paid to Mrs. A for her services in 1999 will be determined later this year.

6. Mr. A did not pay wages to Mrs. A before XXXXXXXXXX due to the application of former subsection 74(3) of the Income Tax Act (the "Act"). Mrs. A did not take any maternity leave with the birth of their three children.

7. Mr. A sold his farm land on XXXXXXXXXX. He also sold all of his farm machinery at a farm auction held on XXXXXXXXXX. Mr. A will dispose of his XXXXXXXXXX inventory during the XXXXXXXXXX calendar years.

8. Mrs. A owns a quarter section of land which was inherited from her father in XXXXXXXXXX. She still receives rental income in the form of a one-third crop share.

9. In respect of her services provided to Mr. A's farm, Mrs. A has not benefited from any pension plan or deferred profit sharing plan.

Proposed Transactions

10. Mrs. A will retire from Mr. A's farm in 1999.

11. Mr. A proposes to pay a retiring allowance of $XXXXXXXXXX to Mrs. A in 1999 for her XXXXXXXXXX years of service. The expression "retiring allowance" has the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act").

12. Mrs. A plans on transferring the $XXXXXXXXXX retiring allowance into a registered retirement savings plan under paragraph 60(j.1) of the Act.

Purpose of the Proposed Transactions

13. Mr. A would like to make a payment to Mrs. A in recognition of the long service she has provided to his farm.

Additional Information

14. To the best of your knowledge and that of Mrs. A and Mr. A, none of the issues involved in this request for an advance income tax ruling:

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

(b) is being considered by a tax services office or taxation centre in connection with a previously filed return of Mrs. A, Mr. A or of a person related to the Mrs. A or Mr. A;

(c) is under objection by Mrs. A, Mr. A or by a person related to the Mrs. A or Mr. A;

(d) is before the courts; or

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

Ruling Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the transactions are completed as proposed, we rule as follows:

A. For the purposes of section 67 of the Act, the proposed payment of the retiring allowance, as described in paragraph 11 above, will be reasonable.

The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996, and is binding on Revenue Canada provided that the retiring allowance is paid on or before XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate