5 November 2003 External T.I. 2003-0039005 - TERMINATION AND RE-EMPLOYEMENT

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:

Whether the retiring allowance status would be jeopardized if the individual accepts a short term contract with is former employer?

Position: Question of fact.

REASON: Provided general comments

XXXXXXXXXX 								2003-003900
L. J. Roy, CGA
November 5, 2003

Dear XXXXXXXXXX:

Re: Re-employment after Payment of a Retiring Allowance

This is in reply to your letter dated September 10, 2003 wherein you requested a confirmation that the acceptance of a contract, a full-time or part-time position with your former employer, will not impact or jeopardize the retiring allowance you previously received from him.

On XXXXXXXXXX, your employment was terminated and your former employer paid you a retiring allowance. Out of that amount, you transferred $XXXXXXXXXX to a Registered Retirement Savings Plan pursuant to paragraph 60(j.1) of the Income Tax Act ("Act"). In XXXXXXXXXX, you were contacted by your former employer and offered a short-term contract which you accepted. Under this contract, you are not participating in the employee medical and dental benefits or pension plans.

The Canada Customs and Revenue Agency's ("CCRA") local tax services offices are responsible for the determination and assessment of the consequences arising out of completed transactions. Accordingly, because your request involves a determination of the tax consequences that will result because of a completed transaction, it should be referred to your tax services offices for their consideration.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5 entitled Advance Income Tax Rulings, dated May 17, 2002. Copies of the information circular, interpretation bulletins and guides are available at your local Tax Services Office or on the Internet http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html. However, we are prepared to provide you with the following general comments, which may be of assistance.

To be a retiring allowance, a payment must be received upon or after retirement or be paid in respect of a loss of office or employment. However, the CCRA has stated in paragraph 8 of IT-337R4 - Retiring Allowances, that retirement or loss of office does not include:

"(a) transfer from one office or position to another with the same employer (or an affiliate), in a different capacity (including one with diminished responsibilities). ...[or]

(b) termination of employment with an employer followed by

· re-employment with the employer (on a full or part time basis) or
· employment with an affiliate of the employer

pursuant to an arrangement made prior to the termination of employment ..."

In Technical News No. 7, dated February 21, 1996, the CCRA made the following clarifying comment:

"the intention was to deny retiring allowance treatment of payments made by the employer where arrangements have been made for the individual to obtain employment with an affiliate. If there is no assurance or offer of a new employment with an affiliate at the time the individual ceases the employment, then we will consider a loss of employment or retirement to have occurred."

These comments continue to be valid. Furthermore, while they refer to continued employment with an affiliate, they also apply to situations where an employee is re-employed by a previous employer.

These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC 70-6R5 dated May 17, 2002, issued by the CCRA and are not considered binding on the CCRA.

Yours truly,

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