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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
How much of the retiring allowance is eligible to be rolled into an RRSP
Position:
A portion of the retiring allowance can be transferred as the individual's former employer is related pursuant to 60(j.1)(v)
Reasons:
Previous positions taken and the provisions of the Act.
May 15, 2002
HAMILTON TSO HEADQUARTERS
Income Tax Rulings
Attention: Bernice Gibson Directorate
M.P. Baldwin, CA
2002-013670
Request for technical interpretation - Eligible Retiring Allowance
This is in reply to your email of May 2, 2002 to our Directorate, requesting assistance in the calculation and reporting of a retiring allowance being paid, and the income tax implications of transferring a retiring allowance to an RRSP.
The particular situation outlined in the letter relates to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. As such, the response to the individual's questions must be provided by your office. However, we are prepared to offer the following general comments, which may be of assistance.
As you know, the Canada Customs and Revenue Agency's (the "Agency") views regarding retiring allowances are provided in Interpretation Bulletin IT-337R3 "Retiring Allowances" (the "Bulletin"). Paragraph 12 of the Bulletin discusses the computation of the amount of retiring allowance that may be transferred to an RRSP under paragraph 60(j.1) of the Act. In particular subparagraph 12(c) of the Bulletin states that the amount that may be transferred is the total of all amounts paid by the taxpayer in the year or within 60 days after the end of the year in respect of the amount so designated as a transfer to an RRSP (other than any portion which has been designated for the purposes of paragraphs 60(j) or (l) of the Act), to the extent such amounts were not deducted in computing income for a preceding taxation year.
For purposes of determining the amount of a retiring allowance that is eligible for a tax-deferred transfer to an RRSP, you may include the number of years an employee was employed by the payer of the retiring allowance and by any other employer of the employee who is related to the payer. 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 that define certain relationships as satisfying the related test for purposes of paragraph 60(j.1) of the Act. Subparagraph 60(j.1)(v) of the Act is one of the special rules which permits a former employer to be considered to be related where service with the former employer is recognized under the current employer's pension plan (as noted in subparagraph 13(b) of the Bulletin). In these circumstances, the years of service with both employers may be considered for purposes of paragraph 60(j.1) of the Act. This position will also apply where service with both employers is recognized under the same pension plan.
Subparagraph 60(j.1)(v) will not apply where the employee has accrued service under one plan, but has not transferred the service to the current plan and, instead, will be receiving benefits separately out of each plan. The fact that two plans may be administered by the same entity does not cause the two employers to be related in accordance with subparagraph 60(j.1)(v) of the Act.
In the situation outlined in the incoming letter, it is noted the individual worked in the XXXXXXXXXX, at which time she received a severance payment $XXXXXXXXXX. She transferred $XXXXXXXXXX of this payment to her RRSP. In XXXXXXXXXX, she transferred to another branch of the Ontario Government and has worked there until XXXXXXXXXX. All of her years of service from XXXXXXXXXX are recognized under the current employer's pension plan and her pension benefits will be based on these years of service.
If the above facts are accurate and complete, the employee is eligible to recognize XXXXXXXXXX years of service for purposes of paragraph 60(j.1) of the Act. This service would be for the years XXXXXXXXXX . As the individual was a member of a pension plan whose service has vested, she is eligible to transfer $XXXXXXXXXX to an RRSP less the amount deducted in computing income in a preceding taxation year, which was $XXXXXXXXXX in XXXXXXXXXX. Consequently, the individual would be eligible to transfer to an RRSP $XXXXXXXXXX of the $XXXXXXXXXX she is receiving as a retiring allowance.
XXXXXXXXXX . As this payment was done in XXXXXXXXXX, we discussed the situation with the Trust Accounts Division in Head Office. It was their opinion that based on the facts of this case and that the structure of the T4A form has changed since XXXXXXXXXX, that the better view for completing the T4A would be to complete the eligible portion of the retiring allowance as $XXXXXXXXXX (Box 26) and the ineligible portion as $XXXXXXXXXX (Box 27) for a total retiring allowance of $XXXXXXXXXX being reported.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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