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.)
Retiring allowances versus retention bonuses
Question: We are laying off some employees at the end of the year. We have given them notice, but we have asked them to stay on until Dec. 31 to finish a project. We will pay each employee an extra amount (beyond their usual pay) for remaining on staff until the termination date. Is this type of payment a retiring allowance?
ANSWER: No, it is not a retiring allowance. A retiring allowance is a sum of money paid on or after termination of employment (including retirement) in recognition of an employee’s long service or as compensation for loss of office or employment. The extra amount you are paying to employees who stay on the job is a retention bonus, which the CRA does not consider to be a retiring allowance.
The cash payment of the bonus will be subject to Canada/Quebec Pension Plan contributions, Employment Insurance and Quebec Parental Insurance Plan premiumss and income tax deductions.
Reporting vacations taken before a maternity leave on a Record of Employment
QUESTION: One of our employees is taking two weeks’ paid vacation before starting her maternity leave. How do I report this on her Record of Employment (ROE)?
ANSWER: The amount of vacation pay that an employer pays to an employee must be included in Blocks 15B, Total Insurable Earnings, and 15C, Insurable Earnings by Pay Period.
The vacation time must be included in Block 15A, Total Insurable Hours. In Block 11, Last Day for which Paid, record the date of the employee’s last day of paid vacation. But beware: This date must not be a statutory holiday.
