24 January 2001 External T.I. 2001-0064595 - Retiring Allowance transfer RRSP

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: Will the taxpayer be eligible for the additional $1,500 per year under clause 60(j.1)(ii)(B)?

Position: No

Reasons:     Employer contributions to the employer's pension plan will have vested in the employee at the time of payment.
			January 24, 2001

	CHARLOTTETOWN TSO	HEADQUARTERS
	Business Services	Income Tax Rulings
			  Directorate
	Attention:  Fay Webster	S.E. Thomson
(613) 952-9853

			2001-006459

Proposed payment of a retiring allowance

You have forwarded to us a fax XXXXXXXXXX, containing the following information:

• An employee worked for XXXXXXXXXX All three employers are members of the Public Service Superannuation Act pension plan (PSSA). The employee's contributions to the PSSA for service with the first two employers were transferred to his RRSP at the time of termination of employment from those employers.
• The employee will be terminated from his current employment in XXXXXXXXXX. The employer proposes to pay a settlement/retirement allowance of one year's salary, approximately $XXXXXXXXXX . The employee will repurchase PSSA service for the years XXXXXXXXXX.
• The employee feels the following portion of the settlement/retirement allowance is exempt from withholdings:

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX
XXXXXXXXXX

XXXXXXXXXX

In addition, XXXXXXXXXX provided the following additional information to us:

• The settlement/retirement allowance cannot be paid directly to the PSSA - it must be paid to the taxpayer.
• The taxpayer may request a direct transfer of the eligible portion of the settlement/retirement allowance to his RRSP, depending on your response.
• The employee is required to pay only his portion of the past service buyback, because the employer's portion was considered to have remained in the plan.

Based on the above information, we provide the following comments:

1. XXXXXXXXXX.

2. The amount that may be transferred under clause 60(j.1)(ii)(B) is $1,500 for each year before 1989. Therefore, if the taxpayer was entitled to this deduction, it would be for XXXXXXXXXX We have pointed this out to XXXXXXXXXX.

3. Whether the settlement/retirement allowance is employment income taxable under section 5 or 6 of the Income Tax Act (the "Act"), or a retiring allowance taxable under subparagraph 56(1)(a)(ii) of the Act is a question to be determined based on the facts of the situation. You may wish to direct the employer to our interpretation bulletin IT-337R3 Retiring Allowances for more information.

4. The amount of any retiring allowance deductible under paragraph 60(j.1) will be reduced by any amount the taxpayer has previously deducted under this paragraph in respect of payments from this employer or a related employer.

5. In order to include the years of employment with the first two employers, the 3 employers must be related. Whether or not the 3 employers are related is a question of fact, although we note that we have previously stated (see our document E 2000-0006615) that generally we will consider employers to be related if each is controlled by Her Majesty in Right of a Province. Also, by virtue of subparagraph 60(j.1)(v), a previous employer will be related if the employee's service therewith is recognized in determining the retiree's pension benefits.

6. If the amount is a retiring allowance, subsections 100(3) and 100(3.2) of the Income Tax Regulations provide that no withholding is required on the amount eligible for transfer to an RPP or RRSP under paragraph 60(j.1). Note that these must be direct transfers. If the retiring allowance is paid to the employee, it is subject to withholdings.

7. The employee will not be entitled to the $1,500 per year deduction under clause 60(j.1)(ii)(B) since employer contributions to the employer's pension plan have vested in the employee at the time of the payment.

We trust that our comments provided for your assistance have been helpful.

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate