13 June 1995 External T.I. 9501485 - RETIRING ALL PAID BY FARMER

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.Can a retiring allowance payable by an individual (who is a farmer using the cash method) at the time of his death to an employee, be deducted from the gross amount of rights or things for the purposes of 70(2)?

2.Can the farmer's employee transfer the retiring allowance to his RRSP using 60(j.1).

Position TAKEN:

1. yes

2.yes

Reasons FOR POSITION TAKEN:

1.The principle enunciated in IT-212R3 is that a taxpayer may deduct from the rights or things or other income of the taxpayer, amounts incurred to generate them but unpaid at the date of the taxpayer's death.

2. The executor of the estate (in the case of a will) is responsible for continuing the business which includes collecting and paying bills on behalf of the deceased taxpayer.

		5-950148

XXXXXXXXXX M. Shea-DesRosiers

Attention: XXXXXXXXXX

June 13, 1995

Dear Sir/Madam:

Re: Payment of a retiring allowance by a farmer employer who reports his income on a cash basis pursuant to section 28 of the Income Tax Act (the "Act")

This is in reply to your letter of January 6, 1995 and to our telephone conversation (XXXXXXXXXX/Shea-DesRosiers) of May 25, 1995 concerning the above-mentioned subject. We apologize for the delay in replying to your letter.

Written confirmation of the tax implications in particular transactions are 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 70-6R2. Where the particular transactions are completed, the enquiry should be addressed to the relevant District Taxation Office. The following comments are, therefore, of a general nature only, and are not binding on the Department.

Paragraph 4 of Interpretation Bulletin IT-212R3 provides that a taxpayer may deduct from the gross amount of a right or thing amounts incurred but unpaid which, had the taxpayer not died, would have been deductible in computing the taxpayer's income. Paragraph 5 of IT-212R3 also provides that in circumstances where the deductions in respect of rights or things exceed the gross amount of the rights or things, the taxpayer may deduct this amount from other income on the final return of the deceased taxpayer. Consequently, it is our opinion that the amount of a retiring allowance which was incurred but unpaid at the time of the employer's death can be deducted from the gross amount of rights or things in calculating their value for the purposes of subsection 70(2) of the Act.

In a situation where the executor of an estate (in the case of a will) has continued the business of the deceased employer and is responsible for paying all related expenses including a retiring allowance on his behalf, the Department considers that the retiring allowance "is an amount paid to the taxpayer by an employer" as stipulated in paragraph 60(j.1) of the Act. Accordingly, a former employee of the deceased could transfer the amount of the retiring allowance to his RRSP to the extent permitted under paragraph 60(j.1) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

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