4 May 1994 External T.I. 9409315 - RETIRING ALLOWANCE TAINTED BY SUBSEQUENT CONTRACT

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:

Whether an employee who is terminated and then offered
a short term contract by the former employer has lost
his employment as required by the definition of

"retiring allowance" in 248(1).

Position TAKEN:

No loss of employment but will reconsider if advance

ruling request submitted.

Reasons FOR POSITION TAKEN:

Routine.

XXXXXXXXXX 940931

May 4, 1994

Dear XXXXXXXXXX:

This is in reply to your letter of March 31, 1994, in which you ask whether a payment being offered by your employer
under a severance package would be considered a "retiring allowance" within the meaning of subsection 248(1) of the
Income Tax Act (unless as otherwise stated all references to this statute are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 - the "Act").

Such a retiring allowance would be eligible for a tax-free transfer to your registered retirement savings plan to the extent permitted by paragraph 60(j.1) of the Act.

In particular, you are concerned that the Department would not view the payment as a retiring allowance because you
will be terminated from your employment and offered a two month term contract by your former employer to XXXXXXXXXX

Where an employee terminates his employment with a company and is paid a severance, this amount would normally qualify as a retiring allowance. Where, however, the individual is rehired by the former employer immediately or shortly after termination, it is the Department's position that the individual has not suffered a loss of employment. This Position could also apply, depending on the contractual arrangements, where the individual is engaged after leaving his employment to perform services for his former employer as an independent contractor.

We cannot confirm that this position would not apply to the situation outlined in your letter. We are prepared, however, to consider this matter further in the context of an advance ruling request.

Enclosed is Information Circular 70-6R2 and the Special Release thereto which explains the procedure for requesting an advance ruling from the Department. Please note that a deposit of $450.00 plus GST ($481.50) must be provided with
your request (please see revised paragraph 18 in the Special Release).

In addition to a complete description of the facts and proposed transactions, we will need copies of the written documentation concerning the severance package and the two month term contract.

We trust the foregoing comments and information will be of assistance.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate