"Retiring allowances" are not novel in taxation and
employment law. Defined in the Income Tax Act
(Canada)1 and explained in CRA
publications2, "retiring allowances" are
routinely treated as a tax effective approach to severance
obligations on termination of employment or "loss of
office". Yet, with the ability to also grant a retiring
allowance in recognition of "long service", they are
becoming more prevalent when transitioning an executive out of an
organization either at the time of termination or retirement.
As part of an executive exit strategy, retiring allowances can
offer an employer greater flexibility than many other more
conventional arrangements. Although the most common application of
a retiring allowance is the payment of an additional sum to an
employee upon the termination of their employment relationship
(e.g., severance), it is also possible for an employer to pay a
retiring allowance solely in recognition of long service on
departure. This can be
