14 September 1994 Internal T.I. 9423527 - RETIRING ALLOWANCE FOR MLA'S

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 re-establishment allowance paid to MLA on resignation, retirement, failure to be re-elected, disability or death is a retiring allowance; whether extra $1500 available to MLA if has vested pension as civil servant.

Position TAKEN:

Not if paid on death, but otherwise yes; not for year MLA was also a vested civil servant.

Reasons FOR POSITION TAKEN:

Reason for payment of re-establishment allowance is for long service or for loss of office; office of MLA is related to employment with provincial government.

			September 14, 1994

Saint John District Office Head Office
R. D. Leger Rulings Directorate
Director P. Spice
Attention: Ms Sharon Jeffrey (613) 957-8953
Client Assistance
942352

Establishment Allowance Payable to Members of the New Brunswick Legislative Assembly (MLA's)

This is in reply to your facsimile transmission of September 9, 1994, and further to our telephone conversation (McInnis/Spice) of September 2, 1994, concerning the taxation of the above-referenced amount and whether it is eligible for tax deductible transfer to a registered retirement savings plan (RRSP) pursuant to paragraph 60(j.1) of the Income Tax Act (the "Act").

Enclosed with your transmission was a copy of a letter from the Assistant Comptroller for New Brunswick which described the circumstances under which the re-establishment allowance is paid and provided the excerpts from the Legislative Assembly Act which authorize the payment of the allowance.

We have reviewed this information and in our opinion if the allowance is paid on retirement, resignation, termination for disability or upon failure to be re-elected, then it constitutes a "retiring allowance" within the meaning of the definition contained in subsection 248(1) of the Act. Amounts paid to the estate of an MLA on death pursuant to subsection 32.2(4) of the Legislative Assembly Act, however, will not qualify as a retiring allowance but will be considered a "death benefit" as defined in subsection 248(1) of the Act. See Interpretation Bulletin IT-337R2 ("Retiring Allowances"), paragraph 9 and Interpretation Bulletin IT-301 ("Death Benefits - Qualifying Payments"), paragraph 2(b) for more information on this subject. Although the latter publication deals with payments in lieu of sick leave credits, the principle extends to a payment of an amount in recognition of service of an employee or officer who dies prior to retirement.

The amount of a retiring allowance which may be transferred on a tax-deferred basis to an RRSP pursuant to paragraph 60(j.1) of the Act is equal to $2000 times the number of years the MLA held an office in the Legislative Assembly or an employment with an employer related to the Legislative Assembly. The "employer" of the New Brunswick Legislative Assembly is the same as the employer of the New Brunswick civil service and, therefore, all years of service as an MLA and a provincial civil servant may be aggregated. Any part of a year counts as one year but may not be counted twice where the individual had two employments or an employment and an office in a single year.

In addition, where an employee has bought back pensionable service for years of service with a previous employer (in your example, the federal public service), the previous employer is considered to be related to the employer who is providing the pension (i.e. the provincial public service) pursuant to subparagraph 60(j.1)(v) of the Act. Since the federal and provincial employments are related and the provincial employment and position as an MLA are related, all the years of service with the federal civil service, the provincial civil service and as an MLA can be counted. Again, where two employments occur in one year, the year can only be counted once.

An MLA may also transfer an additional $1500 for each year the MLA held the office or related employment prior to 1989 so long as no employer contributions to a pension plan or deferred profit sharing plan have vested in the MLA for those years.

Where an MLA previously worked for a related employer and received a retiring allowance from that employer for which a deduction was taken under paragraph 60(j.1) of the Act for an eligible amount of $2000 for each previous year(s) of employment, those years may not be counted again in the calculation of the eligible amount. In addition, if employer contributions have vested in a pension plan with respect to those previous years and part-years of employment, the extra $1500 will not be eligible for transfer to an RRSP in respect of any pre-1989 year even where the individual enters a new employment or office which is not counted as pensionable service with the new employer.

We trust this information is helpful.

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch