10 May 1994 Internal T.I. 9411937 - CITY OF XXXXXXXXXX EARLY RETIREMENT INCENTIVE

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 City of XXXXXXXXXX and certain "reciprocating employers" are related for purposes of 60(j.1).

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

Service with reciprocating employers is not "recognized in determining" employee's pension benefits under City's pension plan.

									May 10, 1994

XXXXXXXXXX District Office Head Office
XXXXXXXXXX, Director Rulings Directorate
P. Spice
Attention: XXXXXXXXXX (613) 957-8953
Public Affairs Officer
941193

City of XXXXXXXXXX Early Retirement

This is in reply to your facsimile transmissions of May 5 and 6, 1994, in which you ask us to review the Reciprocal Arrangements provisions respecting the City of XXXXXXXXXX (a copy was enclosed with your fax) and determine whether the provisions result in the City and "Reciprocating Employers" being related for purposes of paragraph 60(j.1) of the Income Tax Act. You also enclosed a copy of the City's "Voluntary Retirement Incentive Program for XXXXXXXXXX. We note that the City of XXXXXXXXXX has requested a "ruling" on this matter and point out that an advance ruling is provided by the Directorate only when a submission is made in accordance with the instructions set out in Information Circular 70-6R2. Where transactions are completed or substantially completed the district taxation office is responsible for providing advice or confirming the Department's position on the tax consequences which may result. We are providing the following comments to assist you in formulating your response to the City of XXXXXXXXXX.

This will confirm the advice provided in our telephone conversation of May 6, 1994 (Spice/XXXXXXXXXX), that in our opinion the terms of the Reciprocal Arrangements do not evidence that the City of XXXXXXXXXX and previous employers are related. Although subparagraph 60(j.1)(v) of the Act deems a previous employer to be related to the current employer where service with the previous employer is "recognized in determining the retiree's pension benefits", the Reciprocating Arrangements do not affect the pension benefits which will be received by the employee under the City of XXXXXXXXXX pension plan.

In order to satisfy the condition in subparagraph 60(j.1)(v) the benefits under the current employer's pension plan must relate to service with the previous employer i.e. the previous service must be "pensionable" service in the current employer's plan. In the case of the City of XXXXXXXXXX employees will receive a pension from the City of XXXXXXXXXX plan which relates to their service with the City, and a pension from their previous employer with respect to their service with the previous employer. The fact that the previous period of service is added to City service to determine the person's eligibility for a pension under the City's pension plan (i.e. when the pension can commence), or that earnings with the previous employer are taken into account when determining the employee's "best average earnings" under the City's pension plan is not sufficient.

To summarize our position, an employer is "related" to a previous employer under subparagraph 60(j.1)(v) of the Income Tax Act where the employee will be receiving one pension out of the current employer's pension plan and the years of service with the previous employer have been bought back under the current employer's plan, or the benefits from the previous employer's plan have been otherwise transferred into the current employer's plan.

We also considered whether the City and a school division operating in the City might be related in fact but we could not think of any factors indicating that the City and the school authority were controlled by one person or a group of persons. (Reference should be made to paragraph 251(2)(c) of the Act - we are assuming that both entities are "corporations").

for Director
Financial Industries Division
Rulings Directorate