19 January 1995 External T.I. 9432125 - RETIRING ALLOWANCE

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:

	When the retiring allowance must be included in the 	income of the taxpayer?

Position TAKEN:

	In the taxation year of the transfer of the annuity by 	the employer to the employee.

Reasons FOR POSITION TAKEN:

The transfer of ownership of the annuity constitutes the payment of the retiring allowance. See 5-942389, EC0606,

IT-196R2 par.5.

		5-943212
XXXXXXXXXX	Robert Gagnon

Attention: XXXXXXXXXX

January 19, 1995

Dear Sirs:

Re: Retiring Allowance

This is in reply to your letter of November 14, 1994 wherein you requested a technical interpretation concerning the payment of a retiring allowance to XXXXXXXXXX.

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. Where the particular transactions are completed, as in your case, the enquiry should be addressed to the relevant District Office, which is responsible for the review of taxpayers income tax returns. While we are unable to comment on the income tax consequences attendant on the specific facts described in your letter, the following general comments may be of assistance to you.

It is our view that where an employer has arranged the funding for the payment of a retiring allowance to an employee through the purchase of an annuity contract which is not part of a retirement compensation arrangement and the employer transfers the ownership of the annuity to the employee after his retirement or the loss of his employment, the employee must include the value (at the date of the transfer) of the annuity in his income in the taxation year of the transfer. The transfer of ownership of the annuity constitutes the payment of the retiring allowance by the employer to the employee. Accordingly, the allowable transfer of the retiring allowance to a registered retirement savings plan ("RRSP") under the Income Tax Act ("Act") must be made in the year of the transfer of ownership or within 60 days after the end of this year.

The rules for annual reporting of accrued income on annuity contracts applies to the annuity after the transfer of ownership. For the purposes of these rules, the value of the annuity included in the income represents the cost to the employee of the annuity contract.

For the purposes of determining the amount of a retiring allowance eligible for a transfer to a RRSP, the number of years referred to in clause 60(j.1)(ii)(A) of the Act includes the number of years the employee was employed by an employer or a person related to the employer. Where two crown corporations are controlled by the Newfoundland Government, they are related for the purposes of clause 60(j.1)(ii)(A) of the Act.

The prescribed information return in respect of the payment of a retiring allowance must be issued by the receiver where he is managing, distributing, winding up, controlling or otherwise dealing with the property or business of a taxpayer and authorizes or otherwise causes the payment to be made on behalf of the taxpayer.

The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch