Principal Issues: Whether a resident of the province of Québec paying a retiring allowance of $30,000 in 30 equal weekly payments of $1,000 should compute the amount to withhold from each instalment according to the rules in ss. 102(1) of the Regulations, subparagraph 103(4)(a)(i) of the Regulations or subparagraph 103(4)(c)(i) of the Regulations.
Position: S. 102(1) of the Regulations.
Reasons: Ss. 102(1) and 103(4) of the Regulations can apply to a retiring allowance. S. 103(4) does not apply in this situation because the payment of the retiring allowance is not made in a lump sum. S. 102(1) applies since the payment of the retiring allowance is made by periodic payments.
October 2, 2002
Laval Tax Services Office Corporation Reorganizations and
Client Services Industrial Resources Section
3131 St-Martin Blvd. W.
Laval QC H7T 2A7 Marc LeBlond
(613) 946-3261Attention: Mr. Pierre André Hébert
2002-013580
Tax deduction on lump-sum payments, Regulation 103(4)
This is further to your letter of April 24, 2002 and our telephone conversations (LeBlond/Hébert). You asked us which of the withholding rates set out in subsection 103(4) of the Income Tax Regulations ("Regulations") should apply to the payment of a lump sum by instalments in respect of a retiring allowance, in the situation described below. We understand that you are seeking our comments in response to a request from the Commission des normes du travail du Québec concerning such a payment.
The Situation
In 2002, an employer was required to make a lump-sum payment of $30,000 as a retiring allowance. The $30,000 was to be paid in weekly instalments of $1,000 for a period of 30 weeks, so that the payment of this amount will not cause the employer any financial problems.
Your Question and Comments
You are asking whether the employer must withhold 5% of each $1,000 payment, which is the rate that applies when a payment is made in a lump sum not exceeding $5,000, pursuant to subparagraph 103(4)(a)(i) of the Regulations, or 15% of each $1,000 of the $30,000, i.e. the rate that applies when the lump-sum payment exceeds $15,000, pursuant to subparagraph 103(4)(c)(i) of the Regulations.
You argue that subsection 103(4) of the Regulations requires that a withholding be made based on the amount of the payment made and that this subsection does not require that the withholding be made based on the cumulative amount of payments made in a year.
Our Comments
In general, subsection 153(1) of the Income Tax Act (the "Act") requires that every person paying at any time in a taxation year an amount described in paragraphs (a) to (t) to deduct or withhold the amount determined in the prescribed manner and remit it to the Receiver General on account of the recipient's tax. The amount paid as a retiring allowance must be deducted or withheld pursuant to paragraph 153(1)(c) of the Act. The term "retiring allowance" is defined in subsection 248(1) of the Act.
Section 101 of the Regulations generally subjects every person who makes a payment of an amount referred to in subsection 153(1) of the Act to the rules in Part I of the Regulations concerning deductions from tax (Sections 100 to 110 of the Regulations). Sections 102 and 103 of the Regulations deal with periodic and non-periodic payments, respectively.
Section 102 of the Regulations concerns the payment of remuneration. According to paragraph (c) of the definition of "remuneration" in subsection 100(1) of the Regulations, this includes a "retiring allowance". Generally speaking, the calculation of the amount to be deducted or withheld from a remuneration payment is set out in paragraphs (c) to (i) of subsection 102(1) of the Regulations.
Section 103 of the Regulations sets out the rates to be used to calculate the amount to be deducted or withheld from certain payments. Subsections (1), (2) and (3) of section 103 of the Regulations concern the payment of a bonus or retroactive increase in remuneration. Subsection 103(4) of the Regulations deals with a payment that is made in the form of a lump sum. According to paragraph 103(6)(e) of the Regulations, the expression "lump sum payment" means, for the purposes of subsection 103(4) of the Regulations, among other things, a "retiring allowance".
Retiring allowance
It is a question of fact whether an amount received by a taxpayer constitutes a "retiring allowance" within the meaning of subsection 248(1) of the Act. This question can only be decided by examining the relevant facts in each situation.
For present purposes, we have assumed that the amount to be paid in the particular situation would be a "retiring allowance" within the meaning of subsection 248(1) of the Act. We have also assumed that the person who would pay this amount would be the former employer of the lump-sum recipient, since by definition, a "retiring allowance" can only be received when the employee retires (or subsequently), or after the employee has lost that individual’s office or employment.
We draw your attention to the Canada Customs and Revenue Agency ("CCRA") has pronounced on whether an amount received by a person from a former employer under Quebec's Act respecting labour standards constitutes a "retiring allowance", within the meaning of subsection 248(1) of the Act, for two types of allowances. In document 9605175, the CCRA determined that the payment of compensation in lieu of notice, pursuant to section 83 of the Act respecting labour standards in Quebec, did not constitute a "retiring allowance", while in document 9302437, the CCRA determined that compensation for dismissal without just and sufficient cause, granted pursuant to section 128 of the Act respecting labour standards in Quebec, did constitute a "retiring allowance".
Further information on retiring allowances can be found in Interpretation Bulletin IT-337R3.
Application of subsections 102(1) and 103(4) of the Regulation to retiring allowances
Since both subsections 102(1) and 103(4) of the Regulations can apply as a technical matter to a "retiring allowance", as defined in subsection 248(1) of the Act, it is necessary to establish which of the two applies in a particular situation.
In the situation you have presented to us, we believe that subsection 102(1) of the Regulations should apply to "retiring allowance" payments, rather than subsection 103(4) of the Regulations.
In particular, in our view, subsection 103(4) of the Regulations could not apply in the particular situation, since the lump-sum of $30,000 paid as a "retiring allowance" would not be made in a single payment.
Consequently, we believe that in the particular situation, subsection 102(1) of the Regulations should apply, since the lump sum of $30,000 would be paid in 30 periodic payments of $1,000 over a 30-week period.
Should you require additional information regarding this matter, please do not hesitate to contact us.
Best regards,
Maurice Bisson, CGA
for the Director
Corporate Reorganizations and
Resource Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch