Principal Issues: Would continuing to work on a casual basis after retiring from one of two positions with an employer impact the treatment of severance pay to be paid on retirement?
Position: Probably yes.
Reasons: There would not be a retirement or loss of office or employment when the employee continues to occupy one position with the same employer.
XXXXXXXXXX 2009-034238 Andrea Boyle, CGA November 2, 2009
Dear XXXXXXXXXX :
Re: Retiring Allowance - RRSP Rollover
This is in reply to your letter in which you asked whether continuing to work as a casual employee for the same employer has an impact on the transfer of your retiring allowance to a registered retirement savings plan ("RRSP").
More specifically, you have indicated that for several years now you have performed two separate jobs with the same employer - a full-time job from which you will be retiring and a casual job at which you will continue working. As described, the two jobs have different responsibilities and terms of employment.
The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("Act").
A "retiring allowance" is defined in subsection 248(1) to mean an amount received on or after retirement of a taxpayer from an office or employment in recognition of the taxpayer's long service, or in respect of a loss of office or employment of a taxpayer.
Where an amount qualifies as a retiring allowance, the amount must be included in the taxpayer's income by virtue of subparagraph 56(1)(a)(ii) in the year in which it is received. However, subject to certain limitations, a deduction could be available under paragraph 60(j.1) where all or part of a retiring allowance that is received in the year is transferred to an RRSP under which the taxpayer is the annuitant.
Whether a payment qualifies as a retiring allowance is a question of fact that can only be determined definitively after a review of any employment contracts, other agreements and all of the other circumstances relevant to a particular situation.
As indicated in paragraph 8 of Interpretation Bulletin IT-337R4, Retiring Allowances, retirement or loss of an office or employment does not include a transfer from one office or position to another with the same employer (or an affiliate) in a different capacity (including one with diminished responsibilities), or termination of employment with an employer followed by re-employment with the employer (on a full or part-time basis) pursuant to an arrangement made prior to the termination of employment.
Where an employee has retired without any assurance at the time of retirement of being rehired by his/her former employer, and receives from the former employer, a payment based on long service, it is the CRA's position that this payment will qualify as a retiring allowance notwithstanding that the individual might be rehired by the former employer, at a later time when circumstances have changed. Alternatively, an employee will not be considered to have retired if, before he/she retires, the employee enters into an arrangement to work part-time after his/her retirement date and the severance pay paid will not qualify as a retiring allowance for purposes of the Act.
Furthermore, where an employee occupying two positions with an employer retires from one of the two positions, it is our view that there is no retirement or loss of office or employment. Consequently, the amount received would not be a retiring allowance and it would not be eligible for the deduction under paragraph 60(j.1).
We trust that these comments will be of assistance.
Yours truly,
Louise J. Roy
Manager
for Acting Director
Ontario Corporate Tax
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch