Principal Issues: Whether a retiring allowance that is paid in instalments is required to be paid within a certain period of time after termination of employment?
Position: No.
Reasons: There is no provision in the Act that requires a retiring allowance to be paid within a certain period of time after the retirement or loss of employment.
XXXXXXXXXX 2023-096154 T. Baldwin
June 26, 2024
Dear XXXXXXXXXX:
Re: Retiring allowance paid in instalment
This is in reply to your correspondence dated January 25, 2023, wherein you asked us to clarify whether a retiring allowance that is paid in instalments is required to be paid within a certain period of time after an employee’s retirement or loss of employment. We apologize for the delay in providing our response.
Our comments
This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) (footnote 1) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R12, Advance Income Tax Rulings and Technical Interpretations.
Generally, subject to certain exceptions, a retiring allowance is defined in subsection 248(1) to mean an amount received by an individual on or after retirement of the individual from an office or employment in recognition of the individual’s long service or in respect of a loss of an office or employment of the individual, whether or not received as, on account or in lieu of payment of, damages or pursuant to an order or judgment of a competent tribunal.
The determination of whether a particular amount qualifies as a retiring allowance is a question of fact, which can only be made following a review of all the relevant facts and documentation pertaining to the particular situation, including the employment contract, any other employment agreements and any other agreements or documents giving rise to the amount.
The Canada Revenue Agency’s general views on the taxation of retiring allowances are contained in Income Tax Folio S2-F1-C2, Retiring Allowances (the “Folio”). As stated in paragraph 2.26 of the Folio, in some cases, employers offer employees the choice of receiving a retiring allowance as a lump sum at the time of termination or in instalments over a number of years. It is also mentioned in that paragraph that if an individual chooses the instalment option on or before the employment is terminated, the instalments are taxable in the year received.
Provided an amount is a retiring allowance, there is no provision in the Act which prohibits the payment of such an amount in installments or requires it be paid within a certain period of time after the retirement or the loss of employment.
We trust these comments will be of assistance.
Yours truly,
Irina Schnitzer
A/Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 Unless otherwise stated, all statutory references in this document are to the Act.