23 July 1998 Internal T.I. 9808167 - RELATED EMPLOYERS, GOVERNMENTS

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 two employers are related for the purposes of paragraph 60(j.1)?

Position: Yes.

Reasons: Service with previous employer recognized in respect of pension benefits.

			July 23, 1998

	SAINT JOHN TAX SERVICES OFFICE	HEADQUARTERS
O. Massicotte	P.-A. Sarrazin
	Acting Director	(613) 957-8984

Attention: Michelle Weaver
980816

Related Employers for Purposes of Paragraph 60(j.1)

This is in reply to your E-Mail of March 26, 1998, which was sent to Claude Bergevin of the Trust Accounts Division and forwarded to our office for reply. You requested our views on whether two employers are related for the purposes of paragraph 60(j.1) of the Income Tax Act (the "Act").

The Government of Canada and the Government of New Brunswick entered into an Employee Transfer Agreement (the "Agreement") whereunder certain Federal employees became Provincial employees (the "Employees"). The Employees received severance payments from the Federal Government. Some of these Employees are now leaving the Provincial Government and they are entitled to additional severance packages. In determining the amount of retiring allowance eligible for transfer under paragraph 60(j.1) of the Act, you would like to know whether or not the years of service with the Federal Government would be recognized in determining the limits. You also ask whether there would be a problem if an Employee leaves the Provincial Government to return to the Federal Government.

Paragraph 60(j.1) of the Act provides a deduction for the transfer of a retiring allowance to an individual's registered retirement savings plan ("RRSP") or registered pension plan. As noted in paragraph 12 of Interpretation Bulletin IT-337R3, the deduction under paragraph 60(j.1) is limited to the lesser of:

(a) such portion of the retiring allowance included in income for the year as is designated in the taxpayer's income tax return under Part I of the Act;

(b) the amount determined under subparagraph 60(j.1)(ii) of the Act; and

(c) the total of all amounts paid by the taxpayer in the year or within 60 days after the end of the year to a registered pension plan or to the taxpayer's own RRSP.

The amount determined under subparagraph 60(j.1)(ii) is limited to $2,000 times the number of years before 1996 during which the individual was employed by the employer or a "person related to the employer" plus $1,500 times the number of years before 1989 in respect of which employer contributions under a pension plan or deferred profit sharing plan of the employer or a "person related to the employer" had not vested in the individual at the time the retiring allowance was paid. This amount is then reduced by all amounts previously deducted by the taxpayer under paragraph 60(j.1) for amounts paid before the year by the employer or a person related to the employer.

The Department's general views in respect of a person related to the employer for purposes of paragraph 60(j.1) of the Act can be found in subparagraph 13(b) of IT-337R3. Subparagraph 60(j.1)(v) of the Act provides that a related employer includes a former employer of a retiree if any part of the retiree's service with the former employer is recognized in determining the retiree's pension benefits receivable upon retirement from the current employer. If an Employee's years of service with the Federal Government are used in determining the Employee's pension benefits from the Provincial Government, then the Employee's years of service with the Federal Government may be added to the Employee's current years of service to arrive at the total years of employment for purposes of subparagraph 60(j.1)(ii) of the Act. In determining the amount eligible for transfer under paragraph 60(j.1) of the Act, the Employee's limit under subparagraph 60(j.1)(ii) will be reduced by the amount of the retiring allowance received from the Federal Government that was previously transferred under paragraph 60(j.1) of the Act. We note that a calendar year may only be counted once if the Employee worked for both employers in the same year and that a year of service can not be counted a second time if it was previously used in respect of a transfer of a retiring allowance to an RRSP under paragraph 60(j.1) of the Act.

We have reviewed Annex 7 to the Agreement titled "Agreement-in-Principle on Certain Issues Regarding the Transfer of Employees from Canada to New Brunswick". Unfortunately, section 7 of Annex 7 only states that New Brunswick undertakes to set out the details of pension plan arrangements in a separate employee transfer proposal. Since you were not provided with this separate employee transfer proposal, you will have to obtain additional information to determine whether or not the years of service with the Federal Government are recognized in determining the Employees' pension benefits under the Provincial pension plan.

In the situation where an Employee returns to the Federal Government, the above comments would generally continue to apply to any severance package received on termination. However, where an arrangement to return to the Federal Government is made prior to the initial departure from the Federal Government, then as stated in subparagraph 3(b) of IT-337R3, the Employee would not be considered to have lost his employment and the amount received from the Federal Government would not be considered a retiring allowance.

We trust that these comments will be of assistance.

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

c.c. Claude Bergevin
Policy and Technical Services Section
Trust Accounts Division

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