20 October 2000 External T.I. 2000-0045665 - RETIRING ALLOWANCE

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:

1. Can a portion of a retiring allowance be used by the employer to purchase increased pension benefits under its defined benefit pension plan in respect of the departing employee?

2. 2. If so, would this be considered to be an employer contribution and therefore not be taxable to the employee?

Position:

1. Insufficient information to offer an opinion.

2. 2. All of the retiring allowance will be included in the employee's income pursuant to paragraph 56(1)(a)(ii).

Reasons:

1. Requires a review of the terms of the pension plan and the relevant pension legislation (pension benefits standards act) governing the RPP.

2. 2. Character of the amount contributed to the RPP, if such a contribution is possible, would not change from that of a retiring allowance.

XXXXXXXXXX 			2000-004566
G. Kauppinen
October 20, 2000

Dear XXXXXXXXXX:

Re: Retiring Allowance and Contribution to a Defined Benefit Pension Plan

This is in reply to your facsimile transmission dated August 30, 2000 requesting our opinion as to whether the part of a retiring allowance to be paid to a departing employee which is not eligible for a tax-deferred transfer under paragraph 60(j.1) of the Income Tax Act (the "Act") could be contributed to the employee's defined benefit pension plan ("RPP") in order to increase the employee's pension benefits. You have further inquired whether such a contribution would be considered to be a contribution by the employer and would not be included in computing the employee's income for income tax purposes.

In reply to the second part of your query, it is our view that, if a part of the retiring allowance could be contributed to the RPP, the contribution would still be considered to be a retiring allowance and therefore taxable to the employee pursuant to subparagraph 56(1)(a)(ii) of the Act.

We are unable to confirm whether such a contribution could in fact be made. This would be dependent upon the terms of the RPP, the provincial or federal Pension Benefits Standards Act governing the RPP as well as the Income Tax Regulations.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate