18 December 1990 Income Tax Severed Letter

19(1)
                                        5-901775
                                        D. Duff
                                        (613) 957-3498

December 18, 1990

          19(1)

This is in response to your letter of July 30, 1990 requesting a ruling on the transfer of an amount paid pursuant to a wrongful dismissal suit to a registered retirement savings plan ("RRSP").

The Department only issues advanced income tax rulings when the request is submitted in accordance with the guidelines set out in Information Circular 70-6R2, accompanied by a $400 deposit. However, we do offer the following comments.

A retiring allowance, as defined in the Income Tax Act ("the Act"), includes amounts received in respect of a loss of an office or employment. Paragraph 60(j.1) of the Act permits a tax free transfer of a retiring allowance to a RRSP to the extent of $2,000 times the number of years of employment, including those years with a related employer. A related employer includes an employer whose business was acquired or continued by the current employer and an employer whose time is recognized for calculating pension benefits.

Furthermore, an additional $1,500 per year can be transferred for each of the above years before 1989 for which no employer contributions to a pension plan vested in the employee.

Also, as indicated in paragraph 13(a) of Interpretation Bulletin IT-337R2 , the number of years of employment includes a part of a year as one year. Thus, the period from June 1, 1956 to November 15, 1983 would consist of 28 years.

As indicated in paragraph 14 of IT-337R2 , withholding tax on amounts paid directly to a RRSP can by waived by completing Form TD2. Paragraphs 15 to 17 of Information Circular 79-8R2 provide guidelines for completing Form TD2. The withholding rate on the balance is approximately 30%.

We trust that these comments are satisfactory to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate