Income Tax Application Rules — I-3.31 40
Payments out of pension funds, etc. 40 (1) In the case of (a) a single payment (i) out of or under a superannuation or pension fund or plan (A) on the death, withdrawal or retirement from employment of an employee or former employee, (B) on the winding-up of the fund or plan in full satisfaction of all rights of the payee in or under the fund or plan, or (C) to which the payee is entitled because of an amendment to the plan although the payee continues to be an employee whom the plan applies, (ii) on retirement of an employee in recognition of long service and not made out of or under a superannuation fund or plan, (iii) under an employees profit sharing plan in full satisfaction of all rights of the payee in or under the plan, to the extent that the amount thereof would otherwise be included in computing the payee’s income for the year in which the payment was received, or (iv) under a deferred profit sharing plan on the death, withdrawal or retirement from employment of an employee or former employee, to the extend that the amount thereof would otherwise be included in computing the payee’s income for the year in which the payment was received, (b) a payment or payments made by an employer to an employee or former employee on or after retirement in respect of loss of office or employment, if made in the year of retirement or within one year after that year, or (c) a payment or payments made as a death benefit, if made in the year of death or within one year after that year, the payment or payments made in a taxation year ending after 1971 and before 1974 may, at the option of the taxpayer by whom it is or they are received, be deemed not to be income of the taxpayer for the purpose of Part I of the amended Act, in which case the taxpayer shall pay, in addition to any other tax payable for the year, a tax on the payment or total of the payments equal to the proportion thereof that (d) the total of the taxes otherwise payable by the employee under that Part for the 3 years immediately preceding the taxation year (before making any deduction under section 120, 121 or 126 or subsection 127(3) of the amended Act), is of (e) the total of the employee’s incomes for those 3 years. Employee not resident in Canada (2) Where a taxpayer has elected that a payment or payments of one of the classes described in paragraphs (1)(a) to (c) in respect of an employee or former employee who was not resident in Canada throughout the whole of the 3 years referred to in paragraph (1)(e) shall be deemed not to be income of the taxpayer for the purpose of Part I of the amended Act, the tax payable under this section is that proportion of the amount on which the tax is payable that (a) the total of the taxes that would have been payable by the employee under that Part for the 3 years referred to in paragraph (1)(e) (before making any deduction under section 120, 121 or 126 or subsection 127(3) of the amended Act) if the employee had been resident in Canada throughout those years and the employee’s incomes for those years had been from sources in Canada, is of (b) the total of the employee’s incomes for those 3 years, and, in such a case, the election is not valid unless the taxpayer has filed with the election, a return of the employee’s incomes for each of the 3 years in the same form and containing the same information as the return that the employee, or the employee’s legal representative, would have been required to file under that Part if the employee had been resident in Canada in those years. Determination of amount of payment (3) In determining the amount of any payment or payments made in a taxation year out of or under a superannuation or pension fund or plan, under a deferred profit sharing plan or as a retiring allowance that is deemed, for the purposes of this section, not to be income of the taxpayer by whom it is or they are received, there shall be subtracted from the amount of the payment or payments so made (a) the total of all amoun