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: Whether the payment of accumulated sick leave under certain options available in a collective agreement is considered a retiring allowance?
Position: Question of fact. See response.
Reasons: Law and positions taken in previous interpretations.
XXXXXXXXXX
2013-049825
N. Pulandiran
November 26, 2013
Dear XXXXXXXXXX:
Re: Payout of accumulated unused sick leave credits
We are writing in response to your email of July 12, 2013, and our subsequent telephone conversation (Pulandiran/XXXXXXXXXX) concerning the tax treatment of payments of accumulated unused sick leave credits to employees.
In the situation you described, each year an employee may request a lump sum payment, in full or in part, for his or her unused sick leave credits of the immediately preceding year or accumulate any uncashed credits in a termination account. Under the collective agreement, an employee may only receive the balance in his or her termination account when he or she transfers to another unionized or non-unionized job with the same employer, or he or she voluntarily terminates his or her employment with the employer. You have indicated that the lump sum payment for the immediately preceding year's unused sick leave credits is included in the employee's income as employment income. You have asked whether the payment of the balance in the termination account can be considered a retiring allowance.
Our Comments
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
A retiring allowance is defined in subsection 248(1) of the Act as an amount received by an individual on or after retirement in recognition of his or her long service or for a loss of an office or employment. The general views of the Canada Revenue Agency (CRA) concerning retiring allowances are contained in Interpretation Bulletin IT-337R4 (Consolidated), Retiring Allowances. Generally, a payment for unused sick leave credits received only on retirement or for a loss of an office or employment qualifies as a retiring allowance. An annual payment for unused sick leave credits, while the employee remains employed, would be considered employment income and not a retiring allowance.
Whether an individual has retired or received an amount for a loss of an office or employment is a question of fact. Please refer to paragraphs 4 to 6 of IT-337R4 for the CRA's view on when an employee is considered to have retired and when an amount is considered to have been received for a loss of employment.
Further, as stated in paragraph 8 of IT-337R4, a retirement or loss of an office or employment does not include a transfer from one office or position to another with the same employer (or an affiliate) in a different capacity. As such, where an employee receives payment for unused sick leave credits when he or she transfers from one job to another with the same employer or an affiliated organization, the payment would be considered employment income and not a retiring allowance.
We trust our comments will be of assistance.
Yours truly,
Nerill Thomas-Wilkinson
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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