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: Taxability and deductibility of Workers' Compensation Board benefits
Position: Exception to the general rule. While workers' compensation benefits are included in individual's income, they are deductible in computing taxable income.
Reasons: Workers' compensation benefits are deductible in the computation of taxable income because they are designed to replace a portion of after-tax earnings. Benefit levels have been set on the assumption that they would not be taxable. In this context, taxing these benefits could create a hardship for those receiving them.
XXXXXXXXXX M. Shea-DesRosiers
(613) 957-8953
Attention: XXXXXXXXXX
February 7, 2000
Dear Madam/Sir:
Re: Workers' Compensation Board Benefits
This is in reply to your letter of November 19, 1999 addressed to the Vancouver Tax Services Office which was forwarded to us for reply. As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue Agency.
You mention that you have a situation where a recipient of Workers' Compensation Board benefits has an obligation to pay child maintenance based on his taxable income of workers' compensation benefits of approximately $28,000. This amount was deductible in computing his taxable income. You have asked that we explain the reason why Workers' Compensation Board benefits are taxable but at the same time are deductible in computing taxable income.
As you may know, under the income tax system, income from all sources is generally subject to tax. However, workers' compensation benefits have been a long-standing exception to the general rule. While they are included in computing the income of an individual for a taxation year by virtue of paragraph 56(1)(v) of the Income Tax Act, they are also deductible in computing the taxable income by virtue of subparagraph 110(1)(f)(ii) of the Income Tax Act.
We have asked the Department of Finance the reason for this situation and we were advised that it is because the workers' compensation benefits are designed to replace a portion of after-tax earnings. Benefit levels have been set on the assumption that they would not be taxable. In this context, taxing workers' compensation benefits could create a hardship for individuals receiving these payments, unless major changes were made to the structure of provincial workers' compensation programs.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
In come Tax Rulings Directorate
Policy and Legislation Branch
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