23 April 2001 External T.I. 2001-0075235 - RETIRING ALLOWANCE IN INSTALLMENTS

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: 1) How is 60(j.1) applied to a retiring allowance received in annual installments? 2) How is the "amount eligible for transfer" to be reported each year?

Position: 1) Same as for a single lump sum payment. 2) Commencing with first year of receipt of installments, the amount reported as eligible for transfer should equal lesser of amount paid in the year and portion of the total amount eligible for transfer that has not previously been reported.

Reasons: 1) The rules governing deductibility in 60(j.1) do not vary for a retiring allowance paid in installments 2) Scenario is dealt with in 2000 Employers' Guide - Filing the T4A Slip and Summary Form

XXXXXXXXXX 2001-007523
P. Kohnen, CMA
April 23, 2001

Dear XXXXXXXXXX:

Re: Retiring Allowance Paid in Installments

This is in reply to your letter of March 5, 2001, requesting our views regarding the application of comments in Interpretation Bulletin IT-337R3 to your situation.

In your letter, you have outlined an actual fact situation related to completed transactions. We must advise you that the review of completed transactions falls within the responsibility of tax services offices. Consequently, we can only provide you with the following general comments.

If an employee has retired from employment and is receiving a retiring allowance in installments, an amount may be deducted from income in the year, in accordance with paragraph 60(j.1) of the Income Tax Act (the "Act"), if it meets all of the following conditions:

1. it does not exceed the amount that was included in income for the year under subparagraph 56(1)(a)(ii) of the Act;

2. it is designated by the recipient as a transfer of retiring allowance in the income tax return for the year;

3. the amount does not exceed the eligible portion of the total retiring allowance to which the recipient has an entitlement, less all amounts previously deducted under paragraph 60(j.1) in respect of retiring allowance paid by the same employer; and

4. the amount is paid by the recipient to the registered retirement savings plan (RRSP) in the year or within 60 days after the end of the year, and has not been deducted from income for a preceding taxation year.

These conditions are applicable regardless of whether the retiring allowance is paid in one single amount, or as a series of installments. If installments are received over several years, the recipient can choose to designate an amount in accordance with 2 above in any or in all of the years, as long as the limits in 3 and 4 above are respected. This is illustrated in the example in paragraph 8 of Interpretation Bulletin IT-337R3, which you referenced in your letter.

It should be noted that there is no requirement in the Act that the eligible amount that is reported on the T4A Supplementary in a given year must equal the amount that the recipient chooses to designate as a deduction in that year.

On page 17 of the 2000 Employers' Guide - Filing the T4A Slip and Summary Form, there is a specific example of how to report retiring allowances that are paid over a number of years. As the example illustrates, the correct method of reporting the amount eligible for transfer is to enter an amount each year in box 26 of the T4A ("Eligible Retiring Allowances") that equals the lesser of:

1. the amount paid in the year, and

2. the portion of the total amount eligible for transfer that has not previously been reported, until such time as the total amount eligible for transfer has been reported.

We have enclosed a copy of the above-referenced guide for your convenience. We trust that the above comments will be of assistance to you.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate