2002 Ruling 2002-0158543 - RETIRING ALLOWANCE FROM FARM OPERATIONS

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:

Is an amount paid by a farmer to his spouse considered a reasonable retiring allowance given that the spouse worked for XXXXXXXXXX years but was only T4'D for XXXXXXXXXX years?

Position:

Yes, given the facts of this case, the amount not exceeding an amount eligible for rollover under paragraph 60(j.1) of the Act to an RRSP is accepted as reasonable.

Reasons:

In accordance with the guideline provided in Question 10 at the Prairie Tax Conference Round Table and prior rulings given in similar circumstances.

XXXXXXXXXX 						2002-015854 

XXXXXXXXXX, 2002

Dear XXXXXXXXXX:

RE: Advance Income Tax Ruling
XXXXXXXXXX (the "Employee")
XXXXXXXXXX (the "Employer")

This is in reply to your letter of XXXXXXXXXX and facsimile of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above noted-taxpayers. We also acknowledge the information provided during our telephone conversations (XXXXXXXXXX).

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:

Facts

1. The Employer and Employee live at XXXXXXXXXX. They deal with the XXXXXXXXXX Tax Services Office XXXXXXXXXX and file their returns with the XXXXXXXXXX Tax Centre. The Employer's business number is XXXXXXXXXX .

2. The Employer commenced farming in XXXXXXXXXX. The Employer and Employee married in XXXXXXXXXX at which time the Employee began working on the farm with the Employer. The Employee has not been employed by any other farm or business since that time.

3. The Employer began paying the Employee an annual wage for the farm work in XXXXXXXXXX. The Employee's compensation for the last 5 years has been as follows:

1997 $ XXXXXXXXXX
1998 XXXXXXXXXX
1999 XXXXXXXXXX
2000 XXXXXXXXXX
2001 XXXXXXXXXX

The average wage that the Employee earned over these 5 years was $XXXXXXXXXX. The wages to be paid to the Employee for 2002 will be determined later this year. The Employee has not benefited from any pension plan or DPSP in conjunction with her farm employment. The Employee will retire by or on XXXXXXXXXX.

4. The Employee has provided XXXXXXXXXX years of service to the Employer with unpaid labour for XXXXXXXXXX of those years. The Employee participated fully in the labour and management of the farming operation. Specific duties included managing the cattle herd, equipment operation, bookkeeping and administrative tasks.

5. The Employer has sold the majority of his farming operations to his son and will no longer need the services provided by the Employee.

Proposed Transactions

6. The Employer proposes to pay the Employee a retiring allowance of $XXXXXXXXXX for XXXXXXXXXX years of service.

7. The Employee proposes to have the full amount of the retiring allowance transferred into a registered retirement savings plan ("RRSP") pursuant to paragraph 60(j.1) of the Income Tax Act (the "Act").

Purpose of the Proposed Transactions

8. The Employer would like to make a payment to the Employee in recognition of the long service she has provided to his farm.

Additional Information

9. To the best of your knowledge and that of the Employer and the Employee, none of the issues involved in this request for an advance income tax ruling:

a) is in an earlier return of the Employer or the Employee or of a person related to the Employer or the Employee;

b) is being considered by a tax services office or taxation center in connection with a previously filed return of the Employer or the Employee or a person related to the Employer or the Employee;

c) is under objection by the Employer or the Employee or by a person related to the Employer or Employee;

d) is before the courts; nor

e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and purpose of the proposed of the proposed transactions, and provided that the transactions are completed as proposed, we rule as follows:

A. The amount of $XXXXXXXXXX to be paid to the Employee will qualify as a retiring allowance as defined in subsection 248(1) of the Act and will be included in the Employee's income under subparagraph 56(1)(a)(ii) of the Act in the year in which it is paid.

B. The proposed payment of $XXXXXXXXXX to the Employee's RRSP will be deductible by the Employee pursuant to paragraph 60(j.1) of the Act to the extent permitted therein.

C. The amount of $XXXXXXXXXX will be deductible by the Employer in computing income from the business of farming for the year in which it is paid and will be considered reasonable for the purposes of section 67 of the Act.

These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R5 dated may 17, 2002 issued by the Canada Customs and Revenue Agency, and are binding provided the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate