25 May 1995 Internal T.I. 9512647 - FEDERAL EARLY RETIREMENT INCENTIVE PAYMENTS

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:

Whether each of following payments under Federal Early Retirement Incentive and Early Departure Incentive are retiring allowances:

a)severance pay
b) separation benefit
c) pay in lieu of unfulfilled surplus period
d) defined cash payment under EDI (lump sum and/or age and yrs. of service allowance)
e) training allowance

Position TAKEN:

Yes

Reasons FOR POSITION TAKEN:

a), b), c), e) - Routine; d) is a new type of payment which is paid "in exchange for employee's resignation". This is a payment for loss of employment - see comment in para. 6 of IT-337R2 that payments made upon early retirement under early retirement incentive plans are payments in respect of loss of employment.

			May 25, 1995

	Winnipeg Tax Services	Headquarters
J. Purda	P. Spice
	Director		(613) 957-8953
	Attention:  Arlene White
	              Assistant Director
	              Client Assistance 

			951264

Federal Early Retirement Incentive (ERI)
Your Processing Number 8986 351 89

This is in reply to your facsimile transmission of May 9, 1995, in which you ask us to review the terms of the ERI and comment on the characterization of amounts receivable thereunder. You provided a copy of a Treasury Board release of April 1995 entitled "People in Transition: Knowing Your Options" which describes both the ERI and the Early Departure Incentive (EDI) in general terms. In particular, you wish to know whether the severance pay, separation benefit and pay in lieu of unfulfilled surplus period under the ERI would each be considered a retiring allowance and eligible for a rollover to a registered retirement savings plan to the extent permitted by paragraph 60(j.1) of the Income Tax Act (the "Act").

The release you have provided uses imprecise language to describe some of the payments under discussion and we, therefore, will also rely on the knowledge we have gained concerning the Workforce Adjustment Directive and other Federal Government downsizing programs in discussing similar payments under the ERI.

In our view, severance pay due to a federal public servant under the terms of the employee's employment contract (including severance pay the rights to which are affected by the ERI or EDI) is a "retiring allowance" within the meaning of that term in subsection 248(1) of the Act.

Likewise, a separation benefit and the pay in lieu of an unfulfilled surplus period are each considered a retiring allowance.

Although you have not asked us for our comments on the EDI payments, it is our view that each of the "defined cash payment" (the lump sum and age and years of service allowance) and the "education training allowance" described in the Treasury Board release (in, respectively, paragraph 8 and the chart entitled "Description of Proposed Design for the Early Departure Incentive") will qualify as a retiring allowance.

If you have any questions concerning our comments, do not hesitate to contact Patricia Spice at the telephone number cited above.

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch