5 April 2001 External T.I. 2001-0069175 - Reimbursement of Taxes Paid on Salary

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether reimbursement by former employer of taxes paid on salary is taxable?

Position: yes

Reasons: Wording of subsection 6(3) of the Act, e9828408

XXXXXXXXXX 							2001-006917
J. Desparois, M. Fisc.
April 5, 2001

Dear XXXXXXXXXX:

Re: Technical Interpretation Request
Reimbursement of personal tax

This is in reply to your fax of February 7, 2001 regarding the above-noted subject. More specifically, you have requested our opinion concerning the tax implication resulting from the reimbursement received in XXXXXXXXXX of your XXXXXXXXXX personal tax paid by your former employer. You describe the situation as follows.

Situation

From XXXXXXXXXX you were employed in the United States by XXXXXXXXXX. Under the terms of employment, you were taxed in Canada on the salary you received while working in the United States. As a resident in Canada, you have included in your XXXXXXXXXX tax return your salary earned in the United States. In XXXXXXXXXX, your former employer reimbursed the Canadian taxes you have paid in respect of the salary earned in the United States in XXXXXXXXXX. We assume that none of the dispositions in the Canada-United States Income Tax Convention prevents Canada from taxing this salary.

Question

You would like to obtain a written confirmation that the tax reimbursed by your former employer in the year XXXXXXXXXX is subject to tax in XXXXXXXXXX. This confirmation will enable you to claim from your former employer further reimbursement on the tax paid on that reimbursement.

Our comments

Subsection 6(3) of the Income Tax Act (the "Act") provides, in part, that an amount received pursuant to an agreement made immediately before, during or immediately after the period that the payee was employed by the payer is deemed, for the purposes of section 5, to be remuneration for services rendered during the period of employment unless it can be established that the amount can reasonably be regarded as other than a payment received under the contract of employment or for entering the contract of employment or for a covenant with respect to what the payee is or is not to do before or after his employment terminates.

Where a former employer reimburses a former employee for the taxes paid on his salary, it is our opinion that where the reimbursement is paid on account of an obligation arising out of an agreement made by the former employer with the former employee immediately prior to, during or immediately after the former period of employment, the reimbursement is taxable and must be included in income for income tax purposes pursuant to paragraph 6(3)(b) and subsection 5(1) of the Act in the taxation year it is received.

The above comments are an expression of opinion only and are not binding on the Canada Customs and Revenue Agency, as explained in paragraph 22 of Information Circular 70-6R4. We trust that the foregoing will be of assistance to you.

Yours truly,

Alain Godin, Manager
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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