7 March 2005 External T.I. 2005-0110651E5 - Employment Income

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.

Principal Issues:

1. What is the filing deadline for T4 information returns?

2. How is the taxable benefit for a "term insurance benefit" computed?

3. Does an employee have to pay CPP and EI on salary and wages earned while on long-term disability?

4. How is the taxable benefit for use of an automobile computed?

5. Does the acquisition of a vehicle from the employer give rise to a taxable benefit?

Position:

1. Last day of February of the calendar year that salary or wages is paid to an employee.

2. Section 2700 of the Regulations.

3. Yes.

4. Paragraph 6(1)(k) and paragraph 6(1)(e) of the Act or paragraph 6(1)(a) of the Act.

5. Question of fact.

Reasons:

1. Section 205 of the Regulations.

2. Subsection 2701(1) of the Regulations computes the benefit for purposes of subsection 6(4) of the Act.

3. Subsection 21(1) of the CPP Act and subsection 82(1) of the EI Act.

4. Paragraph 6(1)(e) for standby charge and paragraph 6(1)(k) for operating benefit or paragraph 691)(a).

XXXXXXXXXX 2005-011065
A. Seidel, CMA
(613) 957-2058
March 7, 2005

Dear XXXXXXXXXX:

Re: Employment Income

We are writing in response to your January 6, 2005 letter in which you request our views as to whether certain amounts must be included in computing your (the "Employee") employment income for income tax purposes.

Background

The Employee has been disabled since XXXXXXXXXX. The Employee had an operation in XXXXXXXXXX. The Employee attempted rehabilitation and returned to work for a few hours a day for the period beginning XXXXXXXXXX of 2003 and ending in XXXXXXXXXX of 2004. At that point in time, the employer terminated the Employee's rehabilitation program. The Employee commenced a lawsuit against the employer and the matter was resolved in an out-of-court settlement in XXXXXXXXXX of 2004.

Issues

(1) The Employee's employment was terminated on XXXXXXXXXX, 2004. The Employee has not received an accounting of the employment income earned for the period ending XXXXXXXXXX, 2004. The Employee has requested this information. To date, the employer has not provided the information requested by the Employee. Is the employer required to provide such information to the Employee?

(2) The employer included in the Employee's income from employment a taxable benefit in respect of life insurance premiums paid by the employer for the 2003 and 2004 calendar years. Pursuant to a letter from the insurance company, these premiums were waived by the insurance company for the period XXXXXXXXXX of 2003 to the end of 2004. How does the Employee amend the 2003 tax return and how does the Employee ensure that no amount is included in computing the Employee's 2004 employment income?

(3) Disability payments from the insurance company are provided to employees on long-term disability without any source deductions for the Canada Pension Plan ("CPP") or for Employment Insurance ("EI"). The employer continued to deduct CPP and EI from the Employees employment income during 2003 and 2004. Is the Employee entitled to a refund of these contributions to the CPP and EI?

4) The employer included in the Employee's income from employment a taxable benefit in respect of the use of a company-owned pick-up truck. The maximum taxable benefit was included in the Employee's employment income for the period XXXXXXXXXX of 2002 to XXXXXXXXXX of 2004. Is the Employee in receipt of a taxable benefit for the period when totally incapacitated and/or going through rehabilitation and not performing the normal duties of employment?

(5) As part out-of-court settlement, the employer was required to sell the company-owned pick-up truck to the Employee. The employer has informed the Employee that the entire cost of the vehicle, including the goods and services tax thereon, is a taxable benefit to the Employee and must be included in the Employee's 2004 income from employment. Is the cost of the vehicle purchased by the Employee a taxable benefit to the Employee?

Our Comments

Issue #1

Subject to specific exceptions, subsection 200(1) of the Income Tax Regulations (the "Regulations") requires every person who makes a payment described in subsection 153(1) of the Income Tax Act (the "Act") to file an information return (a T4) in prescribed form. Paragraph 153(1)(a) of the Act includes salary, wages or other remuneration paid to an employee. Subsection 205(1) of the Regulations provides that all such information returns must be filed with the Minister without notice or demand and, unless otherwise specifically provided, on or before the last day of February of the year following the calendar year in which the salary, wages or other remuneration is paid. Subsection 209(1) of the Regulations requires every person that is required to file an information return pursuant to subsection 200(1) of the Regulations to forward to an employee two copies of the portion of the T4 information return that relates to that specific employee. Accordingly, in your specific situation, your employer is required to provide the T4 information return by the end of February of 2005 for all salary, wages and other remuneration paid to, and taxable benefits enjoyed by, the Employee in the 2004 calendar year.

Issue #2

Pursuant to subsection 6(4) of the Act, where at any time in a taxation year a taxpayer's life is insured under a group term life insurance policy, there shall be included in computing the taxpayer's income for the year from employment, the amount, if any, prescribed for the year in respect of the insurance. The amount of the term insurance benefit is determined pursuant to section 2700 of the Regulations. In general terms, the term insurance benefit is equal to the amount of term insurance in force in the year times the average daily cost of insurance under the policy for the year. The formula in paragraph 2702(1)(b) of the Regulations provides for a daily calculation of the term insurance benefit for the premium category in which the taxpayer is included on that day. Therefore, where an insurance company provides an employer with written confirmation that a particular employee is not to be included in a particular premium category while on long-term disability, the term insurance benefit to the employee would be nil for the entire period during which the employee is excluded from the premium category. In your specific situation, the Employee should provide all of the details relating to the 2003 income tax return to the local tax services office and request an adjustment to the tax return already filed if the 2003 information return (T4) includes a term insurance benefit for the period after XXXXXXXXXX of 2003. The Employee should also provide a copy of the letter from the insurance company when filing the 2004 income tax return if the employer has included a term insurance benefit in the 2004 information return (T4).

Issue #3

Pursuant to paragraph 153(1)(a) of the Act, subsection 21(1) of the Canada Pension Plan Act and subsection 82(1) of the Employment Insurance Act, an employer is required to withhold and remit income tax, CPP and EI on all payments of remuneration to an employee. Accordingly, and notwithstanding that no CPP or EI is withheld from long-term disability payments, your employer would be required to withhold such amounts on all salary, wages and other remuneration paid to the Employee in a calendar year. Where such amounts exceed the Employee's required contributions to the CPP and EI, the Employee will receive a refund of such amounts when the Employee files the 2004 income tax return.

Issue #4

Interpretation Bulletin IT-63R5 - Benefits, Including Standby Charge for an Automobile, from the Personal Use of a Motor Vehicle Supplied by an Employer - after 1992 ("IT-63R5") discusses the calculation of the taxable benefit related to the availability of an automobile. Subject to specific exceptions, the term "automobile" is defined in subsection 248(1) of the Act as "a motor vehicle that is designed or adapted primarily to carry individuals on highways and streets and that has a seating capacity for not more than the driver and 8 passengers". Paragraph (e) of the definition excludes from the definition, pick-up trucks that satisfy one of the following: (i) have a seating capacity for not more than the driver and 2 passengers and that, in the taxation year in which it is acquired, is used primarily for the transportation of goods or equipment in the course of gaining or producing income; or (ii) is used, in the taxation year in which it is acquired, all or substantially all (generally considered to be 90% or more) for the transportation of goods, equipment or passengers in the course of gaining or producing income.

Where a pick-up truck cannot satisfy any of the paragraph (e) exceptions in the year it is acquired, it is considered to be an automobile. The value of the benefit derived by the Employee, from the personal use and availability of an automobile (the pick-up truck) supplied by the employer, is required to be included in calculating the Employee's income. This value is an amount equal to a prescribed amount per kilometre for operating costs in connection with personal use, paragraph 6(1)(k) of the Act, and a "reasonable standby charge", plus the equivalent to the Goods and Services Tax (GST) on the standby charge, paragraph 6(1)(e) of the Act. In general, the standby charge is calculated with reference to the number of days the automobile was available to the employee or to a person related to the employee. This standby charge may be reduced when the personal use is less than 1,000 kilometres a month and the business-use portion of the total kilometres travelled is 90% or more. Where an automobile is used primarily (generally considered to be 50% or more) for business purposes, an amount equal to one-half of the standby charge benefit may be used as the amount of the operating costs benefit in lieu of the per kilometre calculation.

Where the pick-up truck is not an "automobile", the taxable benefit for the personal use of a motor vehicle is included in the employee's income under paragraph 6(1)(a) of the Act. The taxable benefit is based upon a reasonable calculation of the value of the benefit derived by the employee for the personal use of the motor vehicle.

Issue #5

In general, where an employee purchases a pick-up truck from his employer, and the purchase price of the pick-up truck is equal to the fair market value of the pick-up truck at the time of the purchase, the employee will not be in receipt of a taxable benefit. Where an employee pays less than the fair market value of the pick-up truck at the time of purchase, the employee would be in receipt of a taxable benefit equal to the difference between the fair market value of the pick-up truck and the amount actually paid by the employee.

We hope the above comments are of assistance. For your information, IT-63R5 is available on our website at www.cra-arc.gc.ca. If you wish to discuss any of the above further, do not hesitate to contact the writer.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch