F.B. Fontaine (613) 957-2140
OCT 23 1987
Dear Sirs:
Re: Employee Relocation Counselling File No. 20627/801
This is in reply to your letter dated August 10, 1987 concerning the above-captioned subject.
Our understanding of the situation is that an individual's employment is terminated and that he then receives a termination settlement which includes the provision of relocation counselling by the "employer". Such counselling may include advice with respect to the preparation of a resumé, interview training and identifying skills and employment opportunities.
You are concerned about the tax implications if the counselling to the individual is provided "in-house" by persons in the employ of the employer or is contracted out to a third party not in the employ of the employer. Particularly you wish to know whether or not an amount in respect of the counselling should be included in the income of the individual as a retiring allowance giving rise to withholding at source by the employer.
An amount received from an employer after retirement is taxable either as employment income by virtue of subsection 6(3) of the Income Tax Act (the "Act") or as a retiring allowance by virtue of subparagraph 56(1)(a)(ii) of the Act. If the amount is in satisfaction of an obligation by the employer to the "employee" arising as a result of his employment, the amount is usually considered employment income unless it can be justified as a retiring allowance. If the obligation is in respect of long service or loss of office or employment, the amount likely would represent a "retiring allowance" as the term is defined under subsection 248(1) of the Act.
It could be argued that any counselling given to an employee upon or after ceasing employment would be given primarily for the employee's benefit regardless of whether or not the counselling was given by his employer's staff or someone else. It is, however, the Department's position that there would be no taxable benefit to the employee for in-house counselling, but where the employer purchases the counselling services from a third party there would be a taxable benefit to the extent that the services related to the employee. In this case subsection 6(3) or subparagraph 56(1)(a)(ii) of the Act would apply depending on the particular circumstances.
Whether or not the employer is required to make a withholding would depend on whether or not a payment is made to the employee. Where the employee receives a taxable benefit as discussed above but he was not also in receipt of a cash payment, it would be unreasonable to insist upon deductions from such a non-cash benefit. In all other cases, however, the employer must combine the employee's total remuneration or retiring allowance and withhold in accordance with paragraph 153(1)(a) or (c) of the Act.
We trust the above comments will be helpful to you.
Yours truly,
ORIGINAL SIGNED BY
for Director Small Business & General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch