24 October 1996 External T.I. 9634035 - RETIRING ALLOWANCE AFFILIATE AMALGAMATION

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:

Where an employer corporation is amalgamated with another corporation under section 87 of the Act would the amalgamated corporation be considered an affiliate of the employer corporation for purposes of retiring allowance payment?

Position:

Yes

Reasons:

The courts have generally ruled that an amalgamation is a continuation of the two predecessor corporations therefore a predecessor corporation of an amalgamated entity should not be entitled to pay a retiring allowance for services provided to employer corporation prior to the amalgamation.

								5-963403
XXXXXXXXXX							Franklyn S. Gillman

Attention: XXXXXXXXXX

October 24, 1996

Dear Sirs:

Re: Retiring Allowance

This is in reply to your request on October 11, 1996 where you requested clarification as to the payment of a retiring allowance. Your request relates to a specific group of employees and assurances as to the tax consequences of proposed transactions can only be given in response to a formal request for an advance income tax ruling which would involve, amongst other things, a full analysis of the proposed transactions including a thorough review of the relevant agreements pertaining to the proposed transaction. On the other hand, should the situation relate to a completed transaction, you should consult with the relevant Tax Services Office. Consequently, we are not in a position to give a response to your inquiry. However, we are prepared to make the following general comments.

A retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount (other than a superannuation or pension benefit, and, after November 12, 1981, an amount received as a consequence of the death of an employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. To qualify as a retiring allowance a payment must be in recognition of long service or in respect of loss of an office or employment. As stated in paragraph 5 of Interpretation Bulletin IT-337R2 (copy enclosed), a payment in respect of unused sick leave credits qualifies as a retiring allowance.

The determination as to whether an employee has suffered a loss of office or employment is a question of fact. Interpretation Bulletin IT-337R2 at paragraph 4 states that retirement or loss of employment by an individual does not include termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.

In a situation where a corporation ("Employco") is amalgamated in accordance with section 87 of the Act with another corporation to form Newco, we would consider Newco to be an affiliate of the predecessor corporation, Employco, for the purpose of determining whether an individual has suffered a loss of office or employment.

These opinions are our best interpretation of the law as it applies generally. They may, however, not always be appropriate in the circumstances of a particular case. As stated in paragraph 21 of Information Circular 70-6R2 written opinions are not advance rulings and, accordingly, are not binding on the Department.

We trust these comments will be of assistance.

Yours truly,

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