26 June 2000 External T.I. 2000-0021205 - TAX TREATMENT - DISABILITY PAYMENTS

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: We have been asked whether disability payments made to an individual can be included in income under paragraph 56(1)(v) of the Income Tax Act (the "Act") with the result that a corresponding deduction could be claimed paragraph 110(1)(f) of the Act.

Position: An opinion could not be provided.

Reasons: The specific facts and documentation were not available.

XXXXXXXXXX 2000-002120
M. Eisner
June 26, 2000

DearXXXXXXXXXX:

Re: Disability Payments received from a former Employer -Your 1999 Income Tax Return

This is in reply to your letter of April 13, 2000, concerning the above-noted subject.

In your letter, you made reference to an opinion (reference E73876) dated June 1, 1989, issued by this Directorate, which deals with a situation that you feel is similar to yours. In particular, you made reference to the statement in the letter: It should be noted that the Department will also permit a deduction for amounts received as compensation for any injury on duty to the extent that the amount would have been payable under a workers' compensation award as explained in paragraph 4 of Interpretation Bulletin IT-202R, Employees' or Workers' Compensation. You have concluded that any amount received from a former employer as compensation for any injury on duty, will be deductible in computing taxable income under subparagraph 110(1)(f)(ii) of the Income Tax Act (the "Act") [so that the amounts would not be subject to income tax].

You have been receiving disability payments from your former employer, XXXXXXXXXX, since XXXXXXXXXX, which you have included in taxable income. Presumably you have been getting an information slip from XXXXXXXXXX each year that tells you how much you should include in your annual income tax return. You state that these payments are not from a wage loss replacement plan or superannuation or pension plan. You also state that, since XXXXXXXXXX was not part of the Ontario Workers' Compensation Board, you would not receive workers' compensation benefits, but that this was not an issue since XXXXXXXXXX was making payments directly to you. The letter (dated December 10, 1999) to you from XXXXXXXXXX indicates that you have been receiving XXXXXXXXXX disability benefits which have been paid from current years salary expense (short term disability) or from a medical disability provision on its balance sheet (long term disability). There was no reference made to workers' compensation payments.

You believe that, in your circumstances, the disability payments made to you by XXXXXXXXXX should be treated as non-taxable workers' compensation, being payments included in income under paragraph 56(1)(v), but offset under paragraph 110(1)(f) of the Act, in accordance with the above noted comments made in our 1989 correspondence and the IT-202R2.

Our Comments

Based on the limited information that you provided, it seems to us that you are receiving periodic payments from your former employer as compensation for loss of income from an office or employment, that are payable under a sickness, accident, disability or income maintenance insurance plan, commonly referred to as a wage loss replacement plan. As such, these payments are taxable under paragraph 6(1)(f) of the Income Tax Act (the Act). The Agency has issued an interpretation bulletin IT-428 "Wage Loss Replacement Plans" (copy enclosed), that describes the various rules relating to the tax treatment of payments out of an employer's wage loss replacement plan.

We have noted your views about the comments in paragraph 4 of Interpretation Bulletin IT-202R2 Employees' or Workers Compensation. In the XXXXXXXXXX letter that you enclosed with your letter to us, reference is only made to its disability program. There is no discussion or explanation as to whether you received "compensation," as defined in paragraph 1 of IT-202R2. Since it is the employer's responsibility to determine the tax treatment and report that information on an information slip, it is our view that the amounts are likely payments that are taxable in your hands under paragraph 6(1)(f) of the Act.

It should be noted that the foregoing comments are general in nature and have been made in the absence of all of the relevant documentation surrounding the circumstances under which you are getting benefits. In order to make a definitive determination, it would be necessary to review all the relevant facts and documentation. If you wish to pursue this matter further, it will be necessary for you to submit such documentation to officials in your local tax services offices, as this falls within their responsibility. This policy is set out in paragraph 22 of Information Circular 70-6R3, Advance Income Tax Rulings.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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