10 November 1988 Income Tax Severed Letter 5-6973 - [C.I.C.A. Round Table Question]

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.

November 10, 1988 HEAD OFFICE Financial Industries Division F. Francis (613)957-3496

SUBJECT: OBJET: C.I.C.A. Round Table Question

FILE DOSSIER 5-6973

This is in reply to your memorandum of November 2, 1988, wherein you requested our comments with respect to the following questions that have been submitted to the District Office:

1. Could the Department please comment on what is considered to be "long service" as an employee.

The determination of what constitutes long service can only be made on a case by case basis.

2. Could the Department please indicate its administrative policy with respect to a retiring allowance being paid to a partner who was not previously an employee of the partnership or who was an employee of the partnership for only a short time.

A payment made by a partnership to a retired partner who was not previously an employee will not be considered a retiring allowance.

A payment made by a partnership to a retired partner who was an employee of the partnership for only a short-term may qualify as a retiring, allowance depending on the firm's policy on retiring allowances for employees who do not become partners.

3. In one particular fact pattern, an individual was an employee for a period of approximately seven years before entering the partnership. Under the terms of the partnership agreement, an individual entering partnership is not obliged to pay any amount for his partnership interest and, accordingly, is not entitled to receive any amount upon leaving the partnership. This individual is in the unfortunate situation of having been asked to leave the firm and is being paid an amount in respect of loss of his position with the firm.

Is there any possibility of the payment which he will receive qualifying for roll-over treatment (as a retiring allowance) into his RRSP under paragraph 60(j.1) of the Income Tax Act even though he is not technically an employee of the firm?

The payment made by the partnership to the partner would not qualify as a retiring allowance unless it is evident that the amount is in recognition of the taxpayer's long service as an employee of the partnership. The firm's policy on retiring allowances for other employees would be one indication as to whether or not the payment is a retiring allowance.

If the payment received by the taxpayer does meet the definition of a "retiring allowance" under subsection 248(1) of the Income Tax Act, the fact that the taxpayer was not an employee at the time of the payment would not preclude a transfer under paragraph 60(j.1) of the Act.

We trust the above comments will be of assistance to you.

Wayne Douglas

for Director Financial Industries Division Rulings Directorate