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:
1.Can a retiring allowance be paid to an employee who continues to be employed by an affiliate
2.How is a retiring allowance deduction computed when the employee retires from two related employers.
Position TAKEN:
1. No
2. referred to Act
Reasons FOR POSITION:
1. Routine application of Department position.
2. Application of 60(j.1)(ii)(C.1)
Revenue Canada Round Table
Institute of Chartered Accountants of Alberta
May 12, 1994
Question No. 11.
RETIRING ALLOWANCES: CONTINUATION OF EMPLOYMENT WITH AN AFFILIATE
(a)Paragraph 4(b) of Interpretation Bulletin IT337R2 states that retirement or loss of employment does not include "termination of employment (other than mandatory retirement) with an employer followed shortly by employment with an affiliate of the former employer."
Consider a situation where an individual is employed by two associated companies at the same time with each carrying on a separate and unique business. If the operating assets of one employer are sold at arms length and the employee continues employment only with the remaining affiliate, can the company that ceased operations pay a retiring allowance to its former employee?
(b)In the above situation assume the employers never contributed to a registered pension plan or a deferred profit sharing plan or a retirement compensation arrangement. If both employers sold all of their assets, terminated the employee and paid a retiring allowance, would the total retiring allowance eligible for transfer to an RRSP be limited to $2,000 for each year of service plus $1,500 for each year of service before 1989 or would the limits apply separately to each retiring allowance.
Department's Position
(a)No. In accordance with paragraph 4(b) of the Interpretation bulletin, the Department would not consider the individual to have received a retiring allowance.
(b)Clause 60(j.1)(ii)(A) limits the transfer to $2,000 for each calendar year during which an employee was employed by an employer or by a related employer. Accordingly the year can only be counted once even if the person was employed during the year by two related employers. Clause (C.1) then applies to limit the deduction available to the aggregate paid by related employers in the same year.
In replying to this question we have assumed that the individual's employments have been terminated although the corporations still exist. However, in these situations, we often find that the employee involved will remain as an officer or director of one of the corporations. In such cases it is a question of fact whether a retirement has occurred.
Author: W. Harding File: 904968 Date: April 28,1994