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: Can a retiring allowance be paid in installments where the employee is solely responsible for choosing the installment payment option?
Position: Yes.
Reasons: Paragraph 8 of IT-337R3 confirms our general position.
XXXXXXXXXX 982471
M. P. Sarazin
Attention: XXXXXXXXXX
January 4, 1999
Dear Sirs:
Re: Retiring Allowance Paid in Installments
This is in reply to your letter dated September 23, 1998, wherein you asked whether a retiring allowance could be paid in installments where the employee is solely responsible for determining the installment payment schedule.
As stated in paragraph 8 of Interpretation Bulletin IT-337R3, where an employee receives an amount that is a retiring allowance, within the meaning assigned by subsection 248(1) of the Income Tax Act, and the employee chooses to receive the retiring allowance in installments over a number of years, the installments will be taxable in the year received, provided the employee exercised his or her right to choose the payment option on or before the employment was terminated. This position would apply to all situations where the payment option is chosen on or before the employment was terminated. We find it very hard to envisage a situation where the retirement allowance installment payment option rests solely in the hands of the employee without the employer’s consent to the payment option ultimately chosen being implied.
Whether or not an amount is a retiring allowance is a question of fact. As stated in paragraph 7 of IT-337R3, “where a low (or no) salary was received before retirement in return for a so-called retiring allowance upon or after retirement from an office or employment, such an amount is more likely to be regarded as deferred compensation”. In such circumstances, the salary deferral arrangement rules would likely apply. However, the salary deferral arrangement rules have no application to a payment (or payments) in respect of an amount that is factually a retiring allowance.
We trust that the above comment will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
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