23 March 1994 External T.I. 9405865 - RETIRING ALLOWANCE - PERSON RELATED TO EMPLOYER

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.

RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY

Principal Issues:

Whether another school board is a person related to the current school board where both boards participate in OMERS.

Position TAKEN:

Yes.

Reasons FOR POSITION TAKEN:

Where previous years of service recognized under OMERS, then employers are "related" pursuant to 60(j.1)(v).

XXXXXXXXXX 940586

Attention: XXXXXXXXXX

March 23, 1994

Dear Sirs:

Re: Subparagraph 60(j.1)(v) of the Income Tax Act (the "Act")

This is in reply to your letter of March 2, 1994, in which you ask whether another school board which participates in the Ontario Municipal Employees' Retirement System ("OMERS") can be considered a "person related to the employer" (the "employer" being the XXXXXXXXXX) within the meaning of the above-noted provision.

Written confirmation of the tax implications inherent in particular proposed transactions are given by this directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Questions concerning actual fact situations should otherwise be directed to your district taxation office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department.

Paragraph 60(j.1) of the Act provides a deduction for the transfer of a retiring allowance to an individual's registered retirement savings plan or registered pension plan. The deduction is permitted up to the maximum amount described in subparagraph 60(j.1)(ii) of the Act, namely $2000 times the number of years the individual was employed by the employer or a "person related to the employer" plus $1500 times the number of years before 1989 in respect of which employer contributions under a pension plan or deferred profit sharing plan of the employer or a "person related to the employer" had not vested in the individual at the time the retiring allowance was paid.

It is a question of fact whether a person is "related" to an employer as required by subparagraph 60(j.1)(ii) of the Act. There are, however, provisions in the Act, such as section 251 and subparagraphs 60(j.1)(iv) and (v) of the Act, which define certain relationships as satisfying the test for purposes of the paragraph 60(j.1) deduction.

With specific reference to subparagraph 60(j.1)(v) of the Act, where the individual receiving the retiring allowance was previously employed by another employer, the individual's service with the previous employer may be added to the years of employment to arrive at the total for purposes of subparagraph 60(j.1)(ii) of the Act if the individual's service with the previous employer is recognized to determine the individual's pension benefits upon retirement. In other words, if the individual will be receiving a pension based on the total years of service, then all those years of service can be counted towards the maximum amount of the retiring allowance eligible for the deduction under paragraph 60(j.1) of the Act.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate