5 November 2007 External T.I. 2007-0249291E5 - 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.

Principal Issues: Is a payment from a union to one of its members a retiring allowance?

Position: No.

Reasons: Definition of retiring allowance in subsection 248(1) of the Income Tax Act.

								2007-024929
XXXXXXXXXX 							L. Zannese
(613) 957-2747
November 5, 2007

Dear XXXXXXXXXX :

Re: Retiring Allowance

This is in response to your letter of August 16, 2007 requesting our views on whether a payment made by your local to a member as a result of a decision of the XXXXXXXXXX would qualify as a retiring allowance.

The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

Retiring allowance is defined in subsection 248(1) of the Income Tax Act to mean an amount (other than a superannuation or pension benefit, an amount received as a consequence of the death of an employee or a benefit described in subparagraph 6(1)(a)(iv)) received by a taxpayer on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service or in respect of a loss of an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgement of a competent tribunal.

You inquire as to whether a payment made by a union to a member would qualify as a retiring allowance. The payment results from a decision of the XXXXXXXXXX awarding an amount to compensate the member for the lost opportunity of having her grievance adjudicated. The grievance was with respect to a decision of the member's employer to terminate her employment.

The CRA's general views regarding retiring allowances are contained in Interpretation Bulletin IT-IT 337R4(Consolidated)-Retiring Allowances. Paragraph 5 of this bulletin describes when a payment made would be "in respect of" the loss of an office or employment. In assessing whether a payment is a retiring allowance, the Courts have established two questions, the answers to which determine whether a connection exists between the payment and the loss of an office or employment. First, but for the loss of employment would the amount have been received? Second, was the purpose of the payment to compensate a loss of employment? If the answer to the first question is no and the answer to the second question yes, then in most instances the payment will be a retiring allowance.

The payment you refer to is being received as a result of the member being discharged by her employer. However, the payment is damages for "not having the opportunity to have her grievance adjudicated" and is not a payment for compensation for the loss of employment. Therefore, in our view, a payment of this nature would likely not qualify as a retiring allowance. For more information on our views with respect to the payment of damages resulting from a loss of employment please see paragraphs 9 through 12 of Interpretation Bulletin 337R4(Consolidated)-Retiring Allowances.

We trust that these comments will be of assistance.

Yours truly,

Mary Pat Baldwin, C.A.

For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch