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:can retiring allowance be paid early
Position TAKEN:no
Reasons FOR POSITION:tp still employed by same employer
XXXXXXXXXX 5-951675
July 4, 1995
Dear Sirs:
Re: Retiring Allowances
This is in reply to your letter of March 27,1995, in which you request a ruling which would allow you to transfer a retiring allowance to your RRSP although you are still employed by the same employer that will be paying the amount.
Written confirmation of the tax implications of proposed transactions are given by this Directorate where the transactions are outlined in an advance income tax ruling request. Questions concerning actual fact situations should, on the other hand, generally be replied to by your local tax services office. However, your local office has asked us to provide an answer directly to you.
Given that this is not a proposed transaction we cannot provide a specific answer to your situation. However, the following general comments, which are not binding on the Department, may be of assistance to you.
It is our understanding that you terminated your full-time employment with your employer on July 1, 1993 and became entitled to a retiring allowance in respect of that employment. However, at the same time, your employer rehired you on a part time basis for a 3 year period.
A retiring allowance is defined in subsection 248(1) of the Income Tax Act (the "Act") to mean an amount (other than a superannuation or pension benefit, and, after November 12, 1981, an amount received as a consequence of the death of an employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. However, as noted in paragraph 4 of Interpretation Bulletin IT-337R2 (copy enclosed) retirement or loss of employment by an individual does not include:
a) situations where the individual is subsequently employed by a person who acquires or continues the business of the former employer, or
(b) termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.
For the purposes of determining whether or not termination of employment has occurred the word "affiliate" is intended to be given its broadest meaning and would include any related or associated company that is a member of a group of companies that do not deal at arm's length, notwithstanding that they may not be related or associated for purposes of the Act.
It is our opinion that position (b), stated above, will also apply where the individual is rehired by the former employer shortly after leaving his employment on a full or part time basis. It could also apply, depending on the contractual arrangements, where the individual is engaged shortly after leaving employment to perform services for his former employer as an independent contractor.
Where, in an arm's length situation, an employee has retired without any assurance at the time of retirement of being rehired by his former employer or an affiliate on a full or part time basis, and receives a payment based on long service from the former employer, it is the Department's position that the payment will qualify as a retiring allowance even if the employee might be hired by the employer or an affiliate at a later time. This position will not apply, however, where after the employee is advised of the termination, but before the employee is terminated and the payment is made, the employer or an affiliate provides any assurance that the employee will be rehired by the employer or an affiliate.
We trust that the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
c.c.C. Murphy
Client Assistance Division
Toronto Tax Services Office
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