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.
Subject: Deferral of Payment - Separation Benefits
This is with respect to your memorandum of September 13, 1991 concerning the tax consequences to a retiring employee who requests the deferral of part of a lump sum payment until the following year in order to minimize income taxes.
The lump sum payment may consist of some or all of the following"
Severance pay up to 28 weeks' salary
Pay in lieu of unfulfilled up to 26 weeks' salary
surplus period (cash out)
Additional separation benefit up to 15 weeks' salary
Cash out of unused accumulated
vacation pay may be several months in some
cases
As we discussed (Roy-Moubarak/Douglas), the unused vacation pay is not considered a retiring allowance but rather is income from employment to which the employee is entitled on retirement. Accordingly, there should be no undue delay in paying out such amounts.
With respect to the severance pay, the unfulfilled surplus period pay, and the additional separation benefit, such amounts would be considered "retiring allowances" for the purposes of the Income Tax Act and it is our position that it is permissible for the employer to spread the payment of such amounts to the retiree over an unrestricted period of time.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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