F. Francis (613) 957-3496
December 9, 1988
Dear Sirs;
This is in reply to your letter of November 21, 1988 wherein you requested our comments with respect to the following situation:
- an employee makes an election to retire, under an early retirement program, and receives a payment on his early retirement.
- upon retirement, he is immediately rehired, either as a temporary employee or as a consultant.
You enquire as to whether the payments received by the employee would qualify as a "retiring allowance" as that term is defined under subsection 248(1) of the Income Tax Act (the "Act").
Pursuant to our telephone conversation on December 6, 1988 (XXXX you advised us that the above-described situation represents a specific proposed transaction.
As noted in our Information Circular 70-6R, we do not give opinions on proposed transactions other than as a reply to an advance ruling request. However, we will offer the following general comments.
In a situation where an employee is rehired as a temporary employee immediately upon retirement, it is our position that the employee has not suffered a loss of employment. As a consequence thereof, a payment received by the employee upon early retirement would not be considered a retiring allowance.
In a situation where an employee is retained as a consultant immediately upon retirement, the question of whether the employee has in fact suffered a lose of employment can only be determined after an examination of the terms and conditions of his contract.
We trust the above comments will be of assistance to you.
Yours truly,
Wayne Douglas
for Director Financial Industries Division Rulings Directorate