Principal Issues: [TaxInterpretations translation] Can the sick leave payment be considered a retiring allowance if the payment is received 5 months prior to the employee's retirement?
Position: No
Reasons: The amount is not received by the taxpayer on or after retirement from an office or employment.
2009-034903 XXXXXXXXXX Catherine Ayotte, Notary, M.Fisc. December 16, 2009
Dear Sir
Retiring Allowance
This is further to your email of November 25, 2009 in which you asked our opinion on the above subject, with the facts described below.
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter may constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of the Directorate to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should provide all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments that may be of assistance to you.
Facts
An employee has been reimbursed for a portion of his accumulated sick leave. The cheque was made payable to the employer's pension plan to pay for a service buyback.
The employee in question retired approximately five months after the payment of sick leave.
Question
Can the payment of sick leave be considered a retiring allowance?
Our Comments
A retiring allowance is defined in subsection 248(1) as 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 an office or employment of a taxpayer, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal, by the taxpayer.
As stated in Interpretation Bulletin IT-337R4 - Retiring Allowance, jurisprudence (endnote 1) has found that a payment for unused sick leave credits may constitute a retiring allowance if the payment is in recognition of long service. This Interpretation Bulletin is available on the Canada Revenue Agency website at http://www.cra-arc.gc.ca/E/pub/tp/it337r4-consolid/it337r4-consolid-f.pdf.
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.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager, Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.
ENDNOTES
1 Harel v. Deputy Minister of Revenue (Québec), [1978] 1 SCR 851