Retiring allowance

An owner who is also an employee may be paid on leaving a business that is sold. Whether that payment is a retiring allowance, part of the price or something else decides which rules apply. Subsection 248(1) excludes from the definition a superannuation or pension benefit, an amount received as a consequence of the death of an employee, and a benefit described in subparagraph 6(1)(a)(iv).

RRSP transfer

CRA’s Income Tax Folio S2-F1-C2 says individuals with years of service before the cut-off date in the Act can defer tax on the eligible portion by transferring it to their RRSP, with no effect on their regular RRSP deduction limit. Paragraph 60(j.1) provides the deduction, and the folio says it is available only where the employer, or a retirement compensation arrangement the employer contributed to, pays the allowance. CRA’s transfer page treats the eligible and non-eligible parts separately.

What to ask

• Who pays it, and in what capacity?
• How does the agreement describe the payment, and is any part for a non-compete or for the shares?
• Which years of service count toward the eligible portion?

For the employment-law side, see who pays severance when a business is sold.