An employee is reimbursed for a portion of the employee’s accumulated sick leave, with the amount being paid to the employer's pension plan to pay for a service buyback. The employee retires five months later. CRA stated:
In general, a lump sum payment for the balance of unused sick leave accumulated over the years may be considered a retiring allowance if the payment is made on or after the employee retires from an office or employment. In our opinion, in the situation you have described, the amount received by the employee is not a retiring allowance since it was not received at the time the employee retired from an office or employment or subsequently. In such a case, the amount is usually considered employment income.