G.D. Middleton (613) 995-0051
XXXX
July 14, 1986
XXXX
We are writing in reply to your letter of May 12, 1986 in which you requested our views concerning unused sick leave credits paid to a spouse of a deceased employee.
We offer the following comments with respect to your questions.
1. As indicated in paragraph 5 of IT-337R2 , a payment in respect of unused sick leave credits may qualify as a retiring allowance, as defined in subsection 248(1) of the Income Tax Act (the "Act"), if it is paid upon or after retirement of an employee in recognition of the employee's long service.
2. As indicated in paragraph 4(c) of IT-337R2 , termination of employment as a result of death is not considered to be a form of retirement. Accordingly, a payment in respect of unused sick leave credits made upon the death of an employee will not qualify as a retiring allowance.
3. As indicated in paragraph 2(b) of IT-301 , a payment, in recognition of service of an employee who dies prior to retirement that represents a settlement of his accumulated sick leave credits to which the employee was entitled under the terms of his employment, may be regarded as a death benefit, as defined in subsection 248(1) of the Act.
4. Under subsection 104(28) of the Act, each of the amounts described in 1. and 2. above that are received by a testamentary trust will retain their specific character when flowed through the trust to a beneficiary. Thus, such retiring allowances or death benefits, as the case may be, will be deemed to have been received by the beneficiary rather than the trust.
5. If unused sick leave credits are determined to be retiring allowances, as described in 1. above, they should be included in the beneficiary's income under subparagraph 56(1)(a)(ii) of the Act with the availability of a possible rollover under paragraph 60(j.1) of the Act.
6. On the other hand, if unused sick leave credits are considered to be death benefits, as described in 3. above, they should be included in the beneficiary's income under subparagraph 56(1)(a)(iii) of the Act. Under the definition of death benefits in subsection 248(1) of the Act, up to $10,000 of such amounts received by the spouse of a deceased employee may be excluded from income. For additional details on the calculation of death benefits to be included in income, please refer to IT-237 .
We trust the above comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch