Annie Chong, manager of Carswell's Payroll Consulting Group
Paying a retiring allowance when benefits continue beyond retirement
QUESTION: We are paying retiring allowances to some employees who are retiring in recognition of their long service. These individuals will continue to be part of the company benefits plan for a period of time after they retire. Does this disqualify the payments as retiring allowances?
ANSWER: Not necessarily. The Canada Revenue Agency’s Interpretation Bulletin on retiring allowances (IT-337R4) states that an individual’s continued participation in a health plan (i.e., medical, dental, long term disability) for a “restricted” time period would not disqualify the payment as a retiring allowance, especially if the employer’s health plan allows former employees to be covered.
The term “restricted” is not defined by the CRA.
If, however, the individual is allowed to continue to accrue pension credits, that would indicate that an employment relationship still exists and the payments in recognition of long service would not qualify as a retiring allowance.
(A retiring allowance is an amount paid—when or after employees retire from an office or employment—in recognition of long service or for the loss of office or employment.)
