22 August 2000 1999-000915A - Pay Equity - Estates

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: Where employees or former employees of the federal government died after obtaining a determinable right to pay equity wage adjustment as determined by the Canadian Human Rights Tribunal in 1999:

1. Whether pay equity wage adjustments will be taxable in the hands of former employees pursuant to subsection 70(1) or (2)?

2. Whether interest payable in respect of pay equity wage adjustments will be taxable in the hands of former employees pursuant to subsection 70(1) or (2)?

Position:

1. 70(2).

2. 70(2) to the extent the interest became payable on or before date of death.

Reasons:

1. At the time the employees' right to pay equity wage adjustments became determinable (1999), the wage adjustments pertained to 1998 and earlier years.

2. Interest is payable semi-annually (March 31 and September 30) until an employee's wage adjustment has been paid. The interest becomes payable on those dates only if the wage adjustment has not been paid by then.

		August 22, 2000

	Philip Clarke, Manager  	Headquarters
	Individual Programs Section	J.D. Brooks
	Client Services Directorate	957-2103

Attention: Rick Owen
1999-000915

Federal Government's Pay Equity Payments in 2000

Further to your enquiry of November 23, 1999 in which you requested our views on the taxability of pay equity wage adjustments and interest that will be received by estates of former federal government employees who died prior to the Canadian Human Rights Tribunal ("CHRT") issuing its Order, you requested on March 16, 2000 our views on the taxability of pay equity wage adjustments and interest where an employee or former employee died after the date of the CHRT Order.

Our Views

Although the CHRT made an interim Decision, the entitlement of any specific individual was not determinable until the CHRT issued its final Consent Order on November 16, 1999 and, so, that is the key date for these pay equity issues.

The provisions of subsections 70(1) and (2) do not overlap. If an amount is described in subsection 70(1), it cannot qualify for the provisions of subsection 70(2). Prior to November 16, 1999, no amount in respect of pay equity wage adjustments or interest was payable to any individual since the entitlement of any specific individual had not yet been established. On November 16, 1999, an amount in respect of pay equity wage adjustment and interest became payable in respect of prior years. Thus, where an employee or former employee died on or after that date, the deceased person would have a right or thing as described in subsection 70(2) which would have to be included in the deceased person's income (subject to subsection (3)). This is consistent with paragraph 3 of IT-210R2 and paragraph 2 of IT-212R3.

As we stated in our earlier memo to you, where an employee died prior to November 16, 1999, the interest will be taxable in the hands of the employee's estate since it was not payable prior to the date of death, but rather became receivable by the estate. However, where an employee died on or after November 16, 1999, unpaid interest that became payable on or before the date of death would be reportable by the deceased person pursuant to subsection 70(2), and would not be reportable by the estate. Interest that becomes payable after the date of death would be reportable by the estate.

T. Murphy
Manager, Trusts Section
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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