2013-0511791E5 Eligible retiring allowance

Principal Issues: A taxpayer received a retiring allowance. Whether certain years when the individual was employed with previous employers could be included for purposes of calculating the amount of the retiring allowance that is eligible to be transferred under paragraph 60(j.1) of the Act.

Position: Question of fact.

Reasons: Depends on whether the conditions of subparagraphs 60(j.1)(iv) or (v) are met.

Author: Podor, Karina
Section: 56(1)(a), 60(j.1)

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                                                                                                                                                  2013-051179
                                                                                                                                                  K. Podor   

November 7, 2014

Dear XXXXXXXXXX:

Re:  Eligible portion of a retiring allowance

This is in reply to your correspondence dated November 6, 2013, wherein you requested our views concerning whether certain years of service may be included for purposes of calculating a deduction for the amount of a retiring allowance that is eligible to be transferred to your registered retirement savings plan (“RRSP”).

This technical interpretation provides comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced).  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 IC 70-6R6, “Advance Income Tax Rulings and Technical Interpretations”. 

Facts

Your correspondence outlines the following facts:

*     you joined Corporation A in XXXXXXXXXX
*     Corporation B acquired Corporation A in XXXXXXXXXX
*     Corporation A’s business operations were continued by Corporation B as Corporation C
*     your employment continued with Corporation C until XXXXXXXXXX
*     you joined Corporation D in XXXXXXXXXX
*     Corporation D amalgamated with Corporation B in XXXXXXXXXX and continued as Amalco

In XXXXXXXXXX, you received a retiring allowance from your employer, Amalco.  Your employer determined that no amount of the retiring allowance paid to you was eligible for transfer to your RRSP.  You have asked us to confirm whether your years of service from XXXXXXXXXX to XXXXXXXXXX, while employed with Corporation A and/or Corporation C, may be recognized in calculating the amount eligible for transfer to your RRSP.

Our Comments

In general, the amount of a retiring allowance eligible for a deduction upon a transfer to an RRSP is calculated by reference to the number of years of employment with the individual’s current employer and with a person related to the employer. 

The eligible portion of a retiring allowance is calculated as the sum of:

(a)   $2,000 times the number of years before 1996 during which the taxpayer was employed by the employer or a person related to the employer; and
(b) $1,500 times
(i)   the number of years before 1989 during which the taxpayer was employed by the employer or a person related to the employer, minus
(ii) the equivalent number of years before 1989 in respect of which contributions to a pension plan or a deferred profit sharing plan by the employer or a person related to the employer vested in the taxpayer at the time the retiring allowance is paid.

In your particular situation, the key issue to determine is whether Corporation A and/or Corporation C is a person related to your employer, Amalco.

In addition to the general rules provided under the Act for determining whether persons are related, the retiring allowance rules provide that a person is related to an employer if the employer acquired or continued that person’s business.  Additionally, a former employer is considered to be related to the current employer where service with the former employer is recognized under the current employer’s pension plan.

Based on your fact situation, it is our view that your years of employment with Corporation A and Corporation C, from XXXXXXXXXX to XXXXXXXXXX, may be included in the calculation of the amount eligible for transfer to your RRSP.

Subject to certain limitations, you may claim a deduction for the eligible portion of your retiring allowance transferred to your RRSP without affecting your RRSP deduction limit.  It should be noted that:

*     you must include all retiring allowance amounts received in the year in your income for the year;
*     the eligible portion of your retiring allowance must be transferred to your own RRSP;
*     you must designate the amount as a transfer in your income tax and benefit return for the year;
*     the deduction is reduced by all amounts previously claimed as a deduction in respect of retiring allowances paid to you in the year or a prior year by the same employer or by an employer that is related to your employer; and
*     the deduction cannot exceed the amount you contributed to your RRSP in the year or within 60 days thereof, in respect of the amount designated, to the extent that such amounts were not deducted from your income for a preceding taxation year.

For additional information regarding retiring allowances, we refer you to Interpretation Bulletin (IT)-337R4, “Retiring Allowances”, available on the Canada Revenue Agency (“CRA”) website under “Forms and publications” at: http://www.cra-arc.gc.ca/menu-e.html.

We trust our comments will be of assistance.

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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