2 October 2003 External T.I. 2003-0028365 - RETIRING ALLOWANCE INSTALMENT OPTION

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

PRINCIPAL ISSUE:

Can a retiring allowance that is made pursuant to an arbitration process be paid out in instalments even though the employee did not request the payment option on or before the date the employment is terminated.

Position:

Yes, provided the payment of the retiring allowance in instalments is made pursuant to the terms of the arbitration process agreement or the terms of an order or judgment of a competent tribunal.

REASON:

The retiring allowance is not payable to the employee until the settlement agreement or order or judgment of the tribunal is made, so the position would be similar to our position in paragraph 8 of IT-337R3.

 XXXXXXXXXX 						2003-002836
								Michel Lambert, CA, M.Fisc.
October 2, 2003

Dear XXXXXXXXXX,

Re: Retiring Allowance - Instalment Option

We are writing in reply to your letter of July 2, 2003, wherein you requested our views regarding a retiring allowance. In XXXXXXXXXX, after a lengthy arbitration process, your former employer agreed to pay you a retiring allowance. However, the employer refused to let you choose the instalment option since you were retired. You are of the opinion that it does not seem logical that this option should be ruled out by the chronology of events preceding the payment of the retiring allowance. You ask us if exceptions can be made to this rule considering the circumstances described in your letter.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

As stated in paragraph 8 of the Interpretation Bulletin IT-337R3, in programs designed to encourage voluntary retirements, an employer may offer eligible employees the option of receiving an amount either as a lump sum at the time of termination or in instalments over a number of years. If an employee receives an amount that is a retiring allowance from the program and the employee chooses the instalment option on or before the employment is terminated, the instalments are taxable in the year received.

It is our opinion that the election to choose the instalment option must be made on or before termination of employment, that is, before an employee is legally entitled to demand payment of the termination amount. When an amount is receivable as a consequence of the settlement of an arbitration process, the retiring allowance may be paid out in instalments. The amounts received are taxable in the year they are received provided the payment of the instalments is made pursuant to the terms of the settlement agreement. Otherwise, employees cannot defer the taxation of the retiring allowance.

We trust our comments will be assistance to you.

Yours truly

Louise J. Roy, CGA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch