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: Taxation of Foreign Service Directive - Maternity Leave
Position: Non-taxable.
Reasons: The fact that the allowances are included in the definition of weekly rate of pay for the purposes of defining the entitlement of an employee to maternity leave allowances and supplemental employment benefits should not in substance change the nature of the payments. Accordingly, the portion of maternity benefits which is attributable to FSD 55, 56 and 58 would be exempt from taxation pursuant to subparagraph 6(1)(b)(iii) of the Act.
Ellen Ruth Zeisler
Deputy Director
Foreign Service Directives and
Official Travel Policy Division 1999-000419
Department of Foreign Affairs Karen Power, CA
and International Trade (613) 957-8953
125 Sussex Drive
Ottawa, Ontario
K1A 0G2
March 7, 2000
Dear Ms. Zeisler:
Re: Taxation of "Maternity Allowance"
We are writing in reply to your correspondence of August 18, 1999, wherein you requested our views on whether the Foreign Service Directive ("FSD") - Maternity Leave Allowance (FSD 69.07) is taxable. We apologize for the delay in our response, however, as you are aware, we had requested our legal advisors to opine on this issue.
It is our understanding that foreign service employees are entitled to the following allowances while on assignment outside Canada:
FSD 55 - Post Incentive Allowance - This FSD provides an allowance to compensate for the higher cost of living at certain posts. The amount of the allowance will be determined based on a basic amount for certain salary ranges which are then increased by the post index multiplier.
FSD 56 - Foreign Service Premium and FSD 58 - Post Differential Allowance - These FSDs provide for the periodic payment of predetermined sums of money to foreign service officers and employees while abroad in recognition of the disutilities, disincentives and undesirable conditions which may be part of living overseas.
The above three allowance are considered to be representation or other special allowances for purposes of the subparagraph 6(1)(b)(iii) exemption.
Prior to FSD 69.07, when an employee took maternity leave without pay, the employee received a maternity leave allowance in accordance with the Supplementary Unemployment Benefit Plan. No adjustment was made for the absence of FDS 55, 56 and 58 which are not payable during maternity leave without pay.
It is our understanding that the maternity leave allowance under FSD 69.07 is provided to employees on maternity leave and is based on the individual's actual entitlement to FSD 55, 56 and 58 which they would not otherwise receive due to their being on maternity leave.
We received a copy of FSD 69.07 and A Memorandum of Understanding on Maternity Leave Allowance which explains the changes that were made to the definition of "weekly rate of pay". Basically, "weekly rate of pay" was changed to mean an employee's annual rate of pay divided by 52.176 plus annual amounts of FSD 55, 56, & 58 to which she would have been entitled had she not been on maternity leave without pay divided by 52.176.
In our view, the fact that the allowances are included in the definition of weekly rate of pay for the purposes of defining the entitlement of an employee to maternity leave allowances and supplemental employment benefits should not in substance change the nature of the payments. Accordingly, the portion of maternity benefits which is attributable to FSD 55, 56 and 58 would be exempt from taxation pursuant to subparagraph 6(1)(b)(iii) of the Act.
As your employees on maternity leave have been taxed on the above noted amounts, the employer should prepare amended T4 Supplementary slips and an amended T4 Summary form to reduce the employment income in Box 14 by the portion of maternity benefits which is attributable to FSD 55, 56 and 58. A footnote on the T4 Supplementary slip should be included to indicate that certain allowances have been deleted pursuant to paragraph 6(1)(b)(iii) of the Act. Forward copies to the CCRA and forward a copy of the T4 Supplementary slip to any affected employee advising them to request an adjustment of their T1 return. If you require assistance or wish to facilitate this process please contact, Robert Green at (613) 941-2548 in the Adjustments Section of the Assessment and Collections Branch.
We trust our comments will be of assistance to you.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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