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:
application of ITAR 19 where 1994 loss of employment arose as a result of a congenital disability first diagnosed in 1991
Position TAKEN: itar 19 doesn't apply
Reasons FOR POSITION TAKEN:
As a result of the Jastrebski case, the position in paragraph 3 of it-428 is no longer the Department's position
A. Humenuk
XXXXXXXXXX 942999
January 23, 1995
Dear XXXXXXXXXX:
Re: Application of ITAR 19 to payments received from Employer's Long Term Disability Plan
We are replying to your letter of October 11, 1994 in which you asked us to consider whether certain long term disability benefits you are receiving from your employer's disability plan are non-taxable as a consequence of the transitional provisions of subsection 19(1) of the Income Tax Application Rules, 1971 (ITAR 19).
You advise us that you suffer from myotonic dystrophy, a progressive, hereditary disease which can cause impaired mental function, baldness, cataracts, weakness of muscles (control of eyelids, facial expression, control of grip with hands), difficulty with speech and swallowing, heart problems, testicular atrophy and a tendency to diabetes. While you have had this condition since birth, it was first diagnosed in XXXXXXXXXX a neurologist. In our telephone conversation of January 13, 1995 (XXXXXXXXXX/Humenuk), you indicated that you experienced many of the above noted symptoms such as weakness of grip, extreme fatigue and cataracts prior to 1974 but that your family doctor was not able to diagnose the cause at that time. In addition, you note that the medical records from that time are likely no longer available. You have asked us to confirm that the payments you receive out of your employer's disability plan can be excluded from income by reason of the application of ITAR 19.
Where an employer has contributed amounts to a disability insurance plan, benefits received out the plan are generally included in income by reason of paragraph 6(1)(f) of the Income Tax Act (the Act). One exception to this treatment is where ITAR 19 applies. The purpose of the Income Tax Application Rules was to provide transitional relief as a result of major changes to the Act which occurred in 1971. ITAR 19, in particular, exempts from income disability payments which would otherwise be required to be included in income under paragraph 6(1)(f) of the Act where
(a)the event that gave rise to the disability payments occurred prior to 1974; and
(b)the plan was established prior to June 19, 1971.
With respect to the first requirement, paragraph 3 of Interpretation Bulletin IT-428 "Wage Loss Replacement Plans" states that the word "event" refers to a particular occurrence which adversely affects an employee's health or capacity to work to the degree that loss of employment results at the time of the event or at a later date. It is on the basis of this statement in the bulletin that you feel that the disability income payments you are receiving should be exempt from income. In its decision in the case of Jastrebski v the Queen (94 DTC 6355) however, the Federal Court of Appeal disagreed with this position, stating that both the disability and the loss of employment must occur prior to 1974 in order for ITAR 19 to apply. As a result of this decision, the application of the law has been clarified and the comments in paragraph 3 of the bulletin no longer reflect the Department's position. Accordingly, it is our view that ITAR 19 would not apply in the situation you described in your letter.
While we regret that we could not give you a favourable response, we hope that the foregoing comments have clarified the Department's position in this matter.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislation and Policy Branch
