8 February 1980 Income Tax Severed Letter

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.

XXXX

G.J. O'Reilley Tel. (613) 995-0051

February 8, 1980

Dear Sirs:

Re: Retiring Allowance

This is in reply to your letter of January 17, 1980 concerning an employee who receives an amount of money from his employer in respect of loss of employment following a unilateral termination of his employment by his employer. You request our confirmation that such amount may be treated as a retiring allowance as defined in subsection 248(1) of the Income Tax Act.

A payment received from an employer after retirement is taxable either as employment income by virtue of subsection 6(3) of the Act, as a retiring allowance by virtue of subparagraph 56(1)a)(ii) of the Act or as a termination payment by virtue of subparagraph 56(1)(a)(viii) of the Act. If the payment is in satisfaction of an obligation by the employer to the employee arising as a result of his employment, the amount is usually considered employment income unless it can be justified as a retiring allowance. A retiring allowance is usually a gratuitous payment by the employer however, where the payment results from an obligation of the employer in respect of long service or loss of office or employment we would normally take the position that the amount represents a retiring allowance rather than employment income, provided it is reasonable in the circumstances and we are satisfied that the provisions of subsection 248(1) of the Act which defines "retiring allowance" have been met. A termination payment which is also defined in subsection 248(1) of the Act is a payment received upon termination of an office or employment which is not required by any other provisions of the Act to be included in income.

From the sketchy information contained in your letter it would appear that the amount received resulting from a unilateral termination of employment may be treated as a retiring allowance for income tax purposes.

You also ask us to comment on whether the Department would apply the provisions of subsections 227(8) and (9) of the Act where tax was not withhold and remitted because the amount was considered a retiring allowance and later found not to qualify as such. Without prejudicing the Department's position we could only say that under normal circumstances such provisions would not be applied. However, where circumstances dictate, the provisions may be applied.

You can appreciate that the above comments are of a general nature based on the limited information available. If you have a specific case might we suggest that you apply for an advance income tax ruling. It is only where we have full details of a particular transaction can we give a definite reply.

Yours,

for Director Non-Corporate Rulings Division

GJO'R/mn 56(1)(a)(ii) & (iii) 227(8) & (9)