12 June 1998 External T.I. 9803685 - RETIRING ALLOWANCE PAID BY INSTALMENTS

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 retiring allowance may be paid by instalments

Position: Yes

Reasons: Position stated in IT-337R3, par. 8

		980368
XXXXXXXXXX 	N. Mondou, M.Fisc.
(613) 957-8961

Attention:  XXXXXXXXXX 

June 12, 1998

Dear Sir:

Re: Severance Pay

This is in reply to your letter dated February 18, 1998, in which you request that we confirm our position with respect to the payment of a retiring allowance over a period of up to three years.

A retiring allowance is an amount received on or after the retirement of an employee in recognition of long service or in respect of a loss of an office or employment. The amount, which may be paid by instalments, may be received by the former employee, or after his or her death, by a dependant, a relation or by the former employee's legal representative. Paragraph 8 of Interpretation Bulletin IT-337R3 (“Retiring Allowances”) explains the tax treatment of retiring allowances paid over a period of time. We are enclosing a copy of the publication for your information.

Essentially, where an employee receives an amount that is a retiring allowance and chooses to receive it in instalments over a number of years, the instalments are taxable in the year received, provided the employee exercised his instalment payment option on or before the employment is terminated. Some or all of each instalment may be transferred to the employee’s registered retirement savings plan under paragraph 60(j.1) of the Income Tax Act ( the “Act”) to the maximum allowed by that paragraph. However, if the instalments reflect an amount of interest income earned on the outstanding balance of a retiring allowance, the interest income is not itself a retiring allowance but rather is taxed as interest income under paragraph 12(1)(c) of the Act.

We trust that these comments are of assistance but caution you that they do not constitute an advance income tax ruling and, accordingly, are not binding on the Department with respect to any particular transactions.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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