Pursuant to the collective agreement, an employer grants sick leave to its employees annually, with the balance of the sick leave paid out in December of each year, except that if there is a termination of employment during the year, the balance is paid out at that time. What is the treatment of the payment of unused annual sick leave upon the employee’s resignation, retirement or termination? CRA responded:
[T]he payment of a lump sum to cover the balance of unused sick leave accumulated over the years can be considered a retirement allowance. However, when the payment of the balance of such leave is made annually in accordance with an employment agreement … this payment is not in recognition of long service when the payment is made upon the employee's departure … [and] is usually considered employment income