| 19(1) | File No. 5-9667 |
| W.C. Harding | |
| (613) 957-8953 |
March 8, 1990
Dear Sirs:
Re: Retirement Gratuity Paid After Death
This is in reply to your letter of March 1, 1990 concerning the taxation of a payment of accumulated sick leave credits where the payment is made subsequent to the death of an employee.
We refer you to the Department's Interpretation Bulletin No. IT-337R2, Retiring Allowances, a copy of which is attached. Paragraph 2 of the bulletin notes that a retiring allowance does not include an amount paid as a consequence of the death of an employee. A retiring allowance does however, include an amount which is paid as a consequence of the former employee's retirement but subsequent to his death. Paragraph 5 of the bulletin then notes that payments in respect of unused sick leave credits also qualify as retiring allowances.
Paragraph 9 of the bulletin provides a detailed explanation of the Department's position on the taxation of all or a part of a retiring allowance received, after a former employee's death, by his estate or by a beneficiary named in either the deceased's will or under the terms of an agreement governing the payment of the allowance. If the amount is included in the income of a beneficiary, that person may, within the provisions of paragraph 60(j.1) of the Income Tax Act (the "Act"), transfer the amount to an RRSP. If, however, it is included in the income of the deceased or in the income of the estate, a legal representative of the deceased cannot made such a transfer. Nevertheless, as noted in paragraph 9 of the bulletin, a designation under subsection 104(28) of the Act could be made with respect to the amount to include it in the income of a beneficiary of the estate who could then make a transfer to an RRSP.
We have not directly addressed the four questions asked in your letter as their answers will vary depending on the decisions made as discussed above. We trust, however, that our comments will be of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate