26 May 2000 Income Tax Severed Letter 2000-0021656 - WORKERS COMP. ALTA.-SURVIVING SPOUSES

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:

The tax treatment of amounts to be received pursuant to the Special Payment Act of Alberta (the "SPA") (a copy of this legislation was submitted).

Position TAKEN:

To be included in income pursuant to paragraph 56(1)(v) of the Act; however, an offsetting deduction in computing taxable income may be then claimed under subparagraph 110(1)(f)(ii) of the Act. The amount should be reported on form T5007 pursuant to section 232 of the Regulations.

Reasons FOR POSITION TAKEN:

Based on our review of the provisions of the SPA, we are of the opinion that the special lump sum payments to be received pursuant to that act will be "compensation received under an employees' or workers' compensation law of...a province in respect of...death".

		May 26, 2000

	Business Returns Processing Division	HEADQUARTERS
	Information Returns Section	M. Azzi
		957-8972
	Attention: Joe Hartwick
		2000-002165

Payments to Spouses of Deceased Workers - Province of Alberta

This is in reply to your memos of April 19 and May 12, 2000, wherein you requested our views on the tax treatment of amounts to be received pursuant the Special Payment Act of Alberta (the "SPA"). Our comments are based on the legislation and additional information which was included with your May 12 memo.

We understand that the SPA was proclaimed law effective March 23, 2000. In general terms, the SPA provides for a special lump sum payment of $80,000 to remarried widows and widowers whose spouses died from pre-1982 work-related accidents and whose compensation, under a workers' compensation act of Alberta, was terminated when they remarried, or will be terminated when they remarry. The special payment will only be made to persons alive on the date of application to the Workers' Compensation Board (the "Board") for the special payment, and an individual is entitled to receive the special payment only once (regardless of the number of times the individual may qualify for the payment). There will be no interest attached to the lump sum amount. We also understand that amendments to the Workers' Compensation Act (the "WCA"), Alberta on January 1, 1982 focused on assisting and encouraging dependent spouses to attain long-term self-sufficiency and financial independence through enhanced vocational services.

Our Comments

Based on our review of the provisions of the SPA, we are of the opinion that the special payments to be received pursuant to that act will be "compensation received under an employees' or workers' compensation law of...a province in respect of...death", for purposes of paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) of the Income Tax Act (the "Act") and, accordingly, should be reported on form T5007 pursuant to section 232 of the Income Tax Regulations. For instance, paragraph 1(d) of the SPA indicates that the amount of the special payment was determined by a resolution of the board of directors of the Board, and section 2 of the SPA provides, inter alia, that the Board shall make a special payment, upon application and furnishing of proof of eligibility to the Board. Section 7 of the SPA further provides, inter alia, that the decision of the Board, on an application for special payment, is final and is not open to question or review in any court, and that the Board has exclusive jurisdiction to determine all matters and questions arising under the SPA. In addition, by virtue of paragraph 1(c) and section 3 of the SPA, the special payments will be made as a result of the termination of the workers' compensation of spouses of deceased workers (of workers who died as a result of injury). Finally, by virtue of sections 1 and 8 of the SPA, essentially all of the definitions of the SPA refer to the definitions of the WCA, such that the SPA is essentially an extension of the WCA.

As the payments to be made under the SPA fall within the ambit of paragraph 56(1)(v) of the Act, the recipients must therefore include these amounts in income. However, an offsetting deduction in computing taxable income may then be claimed by the spouses under subparagraph 110(1)(f)(ii) of the Act. Essentially, the payments will go in and out of the spouses' tax returns. While the payments will effectively be non-taxable, the inclusion of these amounts in income may impact on the recipients' entitlement to the GST credit, the Child Tax Benefit and other credits, and may result in a clawback of certain social benefits (i.e., old age security and employment insurance benefits).

We trust that these comments will be of assistance.

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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