2020-0850081R3 Retiring Allowance

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: What is the character of periodic amounts paid to an employee under an employment agreement who was terminated pursuant to the terms of the employment agreement?

Position: The periodic payments constitute a retiring allowance.

Reasons: The periodic payments are in respect of loss of employment and falls within paragraph (b) of the definition of retiring allowance in subsection 248(1).


Section: 6(3); 248(1); 56(1)(a); 212(1)(j.1)

XXXXXXXXXX                                                                                                  2020-085008




Re:   Advance Income Tax Ruling Request

This is in reply to your letter dated XXXXXXXXXX, requesting an advance income tax ruling (“Ruling”) on behalf of the above-named Taxpayer with respect to a series of payments made to the Taxpayer upon termination of employment.

To the best of your knowledge and that of the Taxpayer, none of the proposed transactions or issues involved in this Ruling request are the same as or substantially similar to transactions or issues that are:

i.    in a previously filed tax return of the Taxpayer or a related person and:

A.    being considered by the CRA in connection with such return;
B.    under objection by the Taxpayer or a related person; or
C.    the subject of a current or completed court process involving the Taxpayer or a related person; or

ii.   the subject of a Ruling request previously considered by this Directorate.

This document is based solely on the facts and proposed transactions described below. The documentation submitted with the request does not form part of the facts and proposed transactions, and any references thereto are provided solely for the convenience of the reader.


Unless otherwise stated:

i.    all references to a statute are to the relevant provision of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the Act), or, where appropriate, the Income Tax Regulations, C.R.C., c.945, as amended, (the Regulations);

ii.   all terms and conditions used in this Ruling that are defined in the Act (or in the Regulations) have the meaning given in such definition;

iii.  all references to monetary amounts are in Canadian dollars; and

iv.   the singular should be read as plural and vice versa where the circumstances so require.

The following abbreviations, terms and expressions have the meanings specified, and the relevant parties to the Proposed Transactions (as defined below) will be referred to as follows:

“CRA” means the Canada Revenue Agency;

“Taxpayer” means XXXXXXXXXX;

“Employer” means XXXXXXXXXX.;

“Employment Agreement” means the employment agreement that was entered into between the Taxpayer and the Employer on XXXXXXXXXX and that ends on XXXXXXXXXX

“Post-Termination Payments” means the payments made to the Taxpayer by the Employer, as described in paragraphs 5 to 8;

“Post-XXXXXXXXXX Termination Payments” means the Post-Termination Payments made on and after XXXXXXXXXX, the date that the Ruling request was received; and

“Termination Date” means XXXXXXXXXX, the date that the Taxpayer’s employment was terminated by the Employer.


1.    The Taxpayer is a non-resident of Canada with a principal place of residence at XXXXXXXXXX

2.    The Employer is a resident of Canada.

3.    The Taxpayer was employed in Canada by the Employer pursuant to the terms of the Employment Agreement.

4.    The Taxpayer’s employment was unilaterally terminated without cause by the Employer on the Termination Date.

5.    In accordance with the Employment Agreement, the Employer is required to make payments to the Taxpayer (“Post-Termination Payments”) equal to the amount of base salary that the Taxpayer would have continued to earn under the Employment Agreement had the Taxpayer not been unilaterally terminated. The Taxpayer’s base salary was $XXXXXXXXXX. per annum. The Post-Termination Payments are required to paid on a semi-monthly basis and include any income tax withheld.

6.    The Employment Agreement stipulated that the Post-Termination Payments shall be in full satisfaction of all terms of termination of the Taxpayer’s employment, including termination pay and severance pay, and are reasonable estimates of the damages suffered by the Taxpayer.

7.    The Employer has and will continue to pay the Post-Termination Payments to the Taxpayer until the end of the term of the Employment Agreement.

8.    The Employer did not provide the required statutory notice period to the Taxpayer. The Employer and Taxpayer agreed that the Post-Termination Payments that were paid to the Taxpayer in XXXXXXXXXX were payments in lieu of notice, and therefore employment income for Canadian income tax purposes.

9.    In addition to the Post-Termination Payments, the Employer will continue to pay for the Taxpayer’s and his family’s group health benefit coverage, excluding long-term and short-term disability insurance, life insurance, and out-of-country travel insurance, until the end of the term of the Employment Agreement. This coverage will terminate or be reduced prior to that date if the Taxpayer obtains new employment.

Completed Transactions

10.   The relevant transactions that have been completed are the Post-Termination Payments that have already been paid by the Employer to the Taxpayer.

Proposed Transactions

11.   The Employer will continue to make the Post-XXXXXXXXXX Termination Payments to the Taxpayer and remit, on behalf of the Taxpayer, the applicable withholding tax to the Receiver General.

Purpose of Proposed Transactions

12.   The purpose of the proposed transactions is to enable the Employer to fulfill its obligation under the Employment Agreement.

Rulings Given   

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided further that the proposed transactions are completed in the manner described above, we rule as follows:

The Post-XXXXXXXXXX Termination Payments will qualify as a retiring allowance as defined in subsection 248(1). Provided that the Taxpayer remains a non-resident of Canada, the Post-XXXXXXXXXX Termination Payments will be subject to withholding tax pursuant to paragraph 212(1)(j.1).

These rulings are subject to the limitations and qualifications set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations, dated April 23, 2019, and are binding on the CRA provided that the proposed transactions are completed no later than the end of the term of the Employment Agreement.


The above rulings are based on the law as it reads at the date of this letter and do not take into account any proposed amendments to the Act and the Regulations which, if enacted into law, could have an effect on the rulings provided herein.

Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or made any determination in respect of any tax consequences relating to the facts, or any transaction or event taking place either prior or subsequent to the implementation of the proposed transactions, whether described in this letter or not, other than those specifically described in the rulings given above.


Yours truly,


Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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© Her Majesty the Queen in Right of Canada, 2021

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