18 November 2010 External T.I. 2010-0385831E5 - Retiring Employee Receiving Company Owned Vehicle

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: Tax implications to the employee and withholding requirements of employer on providing a company owned vehicle to an employee upon retirement.

Position: The fair market value of vehicle can be considered part of the employee's retiring allowance. Where cash payments are also made to the individual, the withholding from the cash payment should be adjusted to reflect the total amount of the retiring allowance paid

Reasons: Previous positions taken.

XXXXXXXXXX
									2010-038583
									Andrea Boyle, CGA

November 18, 2010

Dear XXXXXXXXXX :

Re: Retiring Employee Receiving a Company Owned Vehicle

I am writing in reply to your fax dated October 31, 2010, in which you asked about the tax implications to an employee of providing a company owned vehicle to the employee upon retirement. Specifically you have indicated that an employee is retiring after XXXXXXXXXX years of service and, in addition to being paid a lump sum retiring allowance, the individual is being given a company owned vehicle worth approximately $XXXXXXXXXX . You have requested clarification on the proper treatment of the income inclusion to the retiring employee related to the transfer of the vehicle and clarification on the associated reporting and income tax withholding requirements.

The particular situation outlined in your fax appears to relate to a factual one, involving a specific taxpayer. 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 request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.

A "retiring allowance" is defined in subsection 248(1) to include an amount received on or after retirement of a taxpayer in recognition of the taxpayer's long service or in respect of a loss of an office or employment of a taxpayer. "Amount" is defined in 248(1) to mean money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing.

Since the definition of amount includes the value in terms of money of a right or thing, it is our view that the fair market value of specific property received on or after retirement or in respect of a loss of office or employment would be considered part of the employee's retiring allowance and would be included in the employee's income under subparagraph 56(1)(a)(ii).

Therefore, in our view, the fair market value of a vehicle provided to an employee on or after his or her retirement in recognition of his or her long service with the employer would be considered part of the employee's retiring allowance for purposes of the Act.

Subsection 153(1) requires an employer to withhold income tax from the amount of any remuneration, including a retiring allowance, paid to an employee or former employee in accordance with the rules set out in the Income Tax Regulations.

When a non-cash benefit is the only form of remuneration or retiring allowance received from an employer, it becomes impractical to withhold an amount therefore the employer is not required to withhold tax on the amount of such benefits. However, in the current situation, since a cash payment is also being made, the withholding from the cash payment should be adjusted to reflect the total amount of the retiring allowance paid.

We trust that these comments will be of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch