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:
Can a company pay a retiring allowance to the owner's wife immediately before the sale of the company where the owner establishes an unincorporated business to provide consulting to the company and the wife will be employed by the unincorporated business?
Position:
Question of fact
Reasons:
The new employer (unincorporated business) may be an affiliate of the former employer (company prior to its sale) but would have to review all of the facts.
952533
XXXXXXXXXX M.P. Sarazin
December 20, 1995
Dear Sir:
Re: Retiring Allowance
This is in reply to your letter dated September 19, 1995 wherein you requested an opinion as to whether the payment of an amount to a taxpayer would qualify as a "retiring allowance" within the meaning assigned by subsection 248(1) of the Income Tax Act (the "Act").
It appears that the interpretation you seek relates to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto issued on September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments.
The determination of whether there is a loss of employment and whether a payment would qualify as a retiring allowance is a question of fact which can only be determined after a review of all of the relevant facts.
Retiring allowance is defined in subsection 248(1) of the Act to mean an amount (other than a superannuation or pension benefit, and, after November 12, 1981, an amount received as a consequence of the death of an employee) received upon or after retirement from an office or employment in recognition of one's service or in respect of a loss of office or employment. However, as noted in paragraph 4 of Interpretation Bulletin IT-337R2, retirement or loss of employment by an individual does not include termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer.
For the purposes of determining whether or not termination of employment has occurred the word "affiliate" is intended to be given its broadest meaning. Consequently, we are of the view that a proprietor of an unincorporated business could be considered to be an affiliate of an incorporated business where an individual sells his incorporated business to an arm's length person and, immediately thereafter, commences an unincorporated business.
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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1995
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1995