26 June 1996 External T.I. 9621025 - RETIRING ALLOWANCE PART TIME EMPLOYMENT

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:

retiring allowance followed by part time employment

Position:

routine reply provided

Reasons:

routine

XXXXXXXXXX 5-962102

June 26, 1996

Dear XXXXXXXXXX:

Re: Retiring Allowance

This is in reply to your letter dated June 3, 1996, wherein you requested guidelines regarding the transfer of a retiring allowance to an RRSP and subsequent employment.

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Questions concerning actual fact situations should otherwise be directed to your district tax services office. Therefore, we cannot provide a specific answer to your query at this time. However, we can offer the following general comments which are not binding on the Department but may be of value to you.

Retiring allowance is defined in the Income Tax Act (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.

It is generally our position that a retiring allowance cannot be received by an employee who continues employment on a part time basis after retirement from a full time position. However, when an employee has retired without any assurance at the time of retirement of being rehired by an employer or an affiliate and receives from the former employer a payment based on long service, it is the Department's position that this payment will qualify as a retiring allowance notwithstanding that the individual might be hired by the former employer or an affiliate, at a later time. This position would not apply, however, where such non-assurance exists at the time an agreement to terminate employment is entered into but not on the last day of employment; i.e., if between the time of the agreement and the last day of employment, arrangements are made for the employee to be rehired.

It should also be noted that the above general position may not have application where an employee has clearly lost an office or employment but continues to be employed for a short period of time. In this case the payment may be characterized as a retiring allowance even if paid before the actual termination of employment.

Comments on the calculation of the amount of a retiring allowance that may be transferred to an RRSP are also made in the enclosed interpretation bulletin. However, in general, the amount of the retiring allowance for which a deduction is available under paragraph 60(j.1) of the Act is equal to $2,000.00 times the number of calendar years before 1996 during which a person was employed with the employer paying the retiring allowance or with a former employer who is related to the payer, plus $1,500.00 per year in respect of years of employment before 1989 where employer contributions to a pension plan or deferred profit sharing plan had not vested at the time the retiring allowance is paid.

We trust that 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