12 June 1997 External T.I. 9714285 - PARTNER, RETIRING ALLOWANCE

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 partnership pay a retiring allowance to a former partner?

Position:

Question of Fact

Reasons:

Generally admission to partnership is reward for previous service but there may be limited situations where a payment may be considered a retiring allowance.

971428
XXXXXXXXXX M.P. Sarazin

Attention: XXXXXXXXXX

June 12, 1997

Dear Sirs:

Re: Retiring Allowance Paid to Partners

This is in reply to your letter dated May 8, 1997, wherein you requested confirmation that a payment made, under a withdrawal agreement, to a former partner of a partnership to allow her to re-establish herself and in recognition of her long standing service to the firm would qualify as a retiring allowance for purposes of the Income Tax Act (the "Act").

In your letter you have outlined what appears to be an actual fact situation related to a past transaction. The review of such transactions falls within the responsibility of tax services offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. However, we can provide you with the following general comments which we hope will be of assistance.

The question of whether a payment made by a partnership to a former partner is a retiring allowance as defined in subsection 248(1) of the Act can only be determined after a review of all of the facts relating to the particular payment. We note that a partner is not an employee of the partnership and, generally, the employee's admission to partnership is considered to be his or her reward for previous service provided to the partnership. Consequently, we are of the view that there are only a few situations where all of the factors would support a conclusion that the payment to a former partner by a partnership would be in recognition of the former partner's long service as an employee of the partnership thereby allowing the payment to qualify as a retiring allowance. The factors that we would consider in determining whether a payment would qualify as a retiring allowance include, without limiting the generality of the foregoing, the partnership's general policy with respect to the payment of retiring allowances to employees that do not become partners, the partnership agreement, the legal entitlement of the former partner to the amount, the length of service as an employee, the former partner's remuneration while an employee and the withdrawal agreement.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch