13 July 2010 External T.I. 2009-0348951E5 - Taxation of payments made by union to its members

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.

Principal Issues: Will certain payments made by a union to its members be considered to be a retiring allowance or a non-taxable payment?

Position: The payments to the members constitute a retiring allowance and are thus includable in income under paragraph 56(1)(a)(ii) of the Act.

Reasons: The payments satisfy the two-prong test established by the courts for the purpose of determining whether a payment is a retiring allowance.

XXXXXXXXXX
									2009-034895
									D. Wurtele
July 13, 2010

Dear XXXXXXXXXX :

Re: Taxation of payment made by a union to its members

This is in reply to your letter of November 24, 2009 in which you request our views on whether certain payments made by a union to its members constitute a retiring allowance or a non-taxable payment.

Specifically, you describe a situation where members of a union who were employed at a XXXXXXXXXX plant were laid off as a result of their employer's receivership. The union members were not paid outstanding wages, vacation pay and termination pay. XXXXXXXXXX .

Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in IC 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office, a list of which is available on the "Contact Us" page of the CRA website. We are, however, prepared to offer the following general comments which may be of assistance.

The CRA's general views regarding retiring allowances are set out in Interpretation Bulletin IT-337R4 "Retiring Allowances". Paragraph 5 states:

"A retiring allowance includes an amount received in respect of a loss of office or employment. In this context, the words "in respect of" have been held by the Courts to imply a connection between the loss of employment and the subsequent receipt, where the primary purpose of the receipt was compensation for the loss of employment. (See also ¶ 11) Two questions set out by the Courts to determine whether a connection exists for purposes of a retiring allowance are as follows:

1 - But for the loss of employment would the amount have been received? and,

2 - Was the purpose of the payment to compensate a loss of employment?

Only if the answer to the first question is "no" and the answer to the second question is "yes", will the amount received be considered a retiring allowance."

The determination of whether a payment from a union to its members would be a retiring allowance, employment income or a non-taxable payment is a question of fact that can only be determined after reviewing all of the facts and relevant information. Such a review would normally only be undertaken in the context of an advance income tax ruling request. However, based on the limited information contained in your letter, it would appear that the payment described above would satisfy the two-pronged test and thus would constitute a retiring allowance.

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

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch