| 19(1) | File No. 5-9783 |
| A. Adler | |
| (613) 957-8962 |
April 4, 1990
Dear Sirs:
This is in reply to your letter dated March 15, 1990 in which you, requested clarification of the income tax treatment of retiring allowances paid on a periodic basis.
You indicated that it has been the practice of a client to 24(1) in each such 24(1). Further, it is your understanding that beginning January 1990 periodic retiring allowance payments are no longer eligible for direct transfer to an RRSP, and are now considered taxable income from the employer. In addition, each employee is subject to a maximum annual RRSP contribution limit determined under subsection 146(5) of the Income Tax Act (the "Act").
Under the existing provisions of the Act a payment of a portion of a retiring allowance to or on behalf of a former employee has for a number of years generally been required to be included in his income in the year of receipt under subparagraph 56(1)(a)(ii) of the Act whether or not that amount was paid directly to an RRSP. Further, the former employee has also been entitled to claim a deduction from income under paragraph 60(j.1) of the Act where direct payments by his employer or indirect payments by the employee, in respect of a portion of a retiring allowance, were made to an RRSP and the requirements of that paragraph were fully satisfied. The proposed amendments to the Act under Bill C-52 will not change this treatment.
In 1990, a taxpayer's maximum contribution limit for contributions to an RRSP under subsection 146(5) of the Act will not be reduced by any contribution to an RRSP in respect of and to the extent of the taxpayer's 1990 deduction under paragraph 60(j.1) of the Act.
It is our understanding that the sole proposed amendment to paragraph 60(j.1) of the Act will replace the existing two limits of $2,000 and $1,500 therein by a single limit of $2,000 for each year of service after 1988. However, the existing limits will continue to apply for years of service prior to 1989. (Paragraph 12 of enclosed Interpretation Bulletin No. IT-337R2 outlines and discusses existing paragraph 60(j.1) of the Act.)
Accordingly, it is our view that your client may continue to make direct periodic payments to a former employee's RRSP in respect of his retiring allowance, and that such payments, to the extent they are deductible under paragraph 60(j.1) for a year, will not affect the former employee's contribution limit for the year under subsection 146(5) of the Act.
We trust that our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries and ResourceRulings Directorate