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 payments under various income assistance programs and its affect on the guaranteed income supplement.
Position: Benefits paid to employees would be taxable as other income under subparagraph 56(1)(a)(vi). Must be considered in establishing an individuals entitlement to the GIS.
Reasons: Consistent with previous opinion and the definition of "pension income" in the OAS regulations does not include payments under the various programs.
Jean-Bernard Daudelin
Acting Director
Child, Family and Community Division 2000-004546
Social Development Directorate Karen Power, CA
Human Resources Development Canada (613) 957-8953
140 Promenade du Portage
Place du Portage, Phase IV, 5th Floor
Hull, Quebec
K1A 0J9
September 22, 2000
Dear Mr. Daudelin
Re: Taxation of Government Assistance to Former Fish Plant Workers and/or Fishers
We are writing further to our recent meeting of September 18, 2000 concerning the income tax treatment of various support programs (the "Programs") available to former fish plant workers and/or fishers and its impact on recipients entitlement to Guaranteed Income Supplement (GIS) payments. In addition, you have specifically requested that we confirm the income tax treatment of the following programs:
1. Program for Older Workers Adjustment
2. Income Supplement Program for Older Workers
3. Plant Workers Adjustment Program
4. Fisheries Early Retirement
We also acknowledge receipt of copies of agreements for each of the above programs.
Overview of GIS Issue
The optional income provisions of the OAS legislation are intended to buffer low-income pensioners from the financial impact of decreased revenues due to ceasing employment, ceasing a business or from a reduction in pension income. In these circumstances, if it is to the applicant's advantage, the income-tested benefits may be calculated based on estimated income for the current year instead of actual income of the preceding calendar year. The OAS Act states that, for GIS purposes, the income of a person is computed in accordance with the Income Tax Act (the "Act").
The CCRA has consistently stated that income assistance payments made to individuals previously employed with the fishing industry are taxable as other income. (We have enclosed various letters dating back to 1993 which outline this position).
It is our understanding that the purchase of annuities by the government is the typical funding mechanism for delivering many of the Programs which have been implemented to assist individuals to permanently adjust out of the fishing industry. The monthly benefits paid to the individuals are set by the government and annuities are purchased from private insurance companies to fund the estimated payments. The insurance companies handle the day-to-day administration of the Programs.
It is this funding mechanism which has led to some confusion concerning the appropriate tax treatment of benefits paid under the Programs. The insurance companies administering the Programs may have been issuing T5 slips indicating that the recipients had received annuities. For purposes of the optional income provisions, the OAS regulations provide a separate definition of "pension income" which includes annuity payments.
The attached opinion letter, file #1999-000331 provides our view on why benefits under the program are taxable as other income under subparagraph 56(1)(a)(vi) and not as annuities under paragraph 56(1)(d) of the Act.
The definition of "pension income" under the OAS regulations does not include payments made under the Programs. Accordingly, when the benefits cease or are reduced, they do not constitute an event that falls under the OAS legislation's GIS optional income provision and the assistance must be considered in establishing entitlement to the GIS.
As you are aware, the appropriate tax treatment for Program benefits has resulted in reduced GIS benefits for certain individuals. Once the Program benefits are treated as other income and not an annuity, the recipients no longer have the ability to utilize the optional income provisions of the OAS legislation with respect to those benefits. GIS entitlements are no longer based on the individual's estimated income for the current year, but rather the taxpayers income for the preceding calendar year, which would include benefits received under the Programs.
XXXXXXXXXX.
Tax Treatment of Specific Programs
1. Program for Older Worker Adjustment ("POWA")
It is our understanding that this program was implemented to assist older workers by offering them regular monthly income support payments until they reach the age of 65. POWA benefits will be made available to workers whose employment has been terminated in major layoffs, which would lead to severe hardship for substantial numbers of older workers. Section 5 of the Department of Labour Act provides the authority for the implementation, operation and financing of the program.
In our view, POWA benefits received by former employees, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
2. Income Supplement Program for Older Workers ("ISPOW")
It is our understanding that this program was implemented to assist older workers by offering them regular monthly income support payments until they reach the age of 65. ISPOW benefits will be made available to employees who have lost his/her job as a result of a permanent lay-off. Section 5 of the Department of Labour Act provides the authority for this program.
In our view, ISPOW benefits received by former employees, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
3. Plant Workers Adjustment Program ("PWAP")
It is our understanding that this program was implemented to provide income replacement assistance to older laid-off fish plant workers and trawlermen by offering them regular monthly income support payments until they reach the age of 65. PWAP benefits will be made available to older fish plant workers or trawlermen whose employment was terminated in a major permanent layoff which would lead to severe hardship for substantial numbers of older workers. Section 5 of the Department of Fisheries and Oceans Act provides the authority for this program.
In our view, PWAP benefits received by former employees, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
4. Fisheries Early Retirement ("FER")
It is our understanding that this program was implemented to provide periodic income assistance payments to fisher and fish plant workers by offering them regular monthly income support payments until they reach the age of 65. FER benefits will be made available to either: a) former fish plant workers whose regular employment was terminated by reason of permanent reduction in the work force at the fish plant because of a decline of East Coast groundfish stocks or b) fishers whose opportunities have been curtailed because of a decline of East Coast groundfish stocks. Section 33 of the Department of Human Resources Development Act and Subsection 3(2) of the Fisheries Development Act provide the authority for this program.
Self-employed individuals, considered to be earning income from business, in receipt of FER benefits would be required to include such amounts in the computation of business income by virtue of section 9 and/or 28 of Act. While, FER payments received by individuals other than self-employed individuals, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
Section 56 of the Act requires that certain amounts be included in computing the income of a taxpayer for a taxation year. Specifically, subparagraph 56(1)(a)(vi) states:
"except to the extent otherwise required to be included in computing the taxpayer's income, a prescribed payment... .
Paragraph 5502(c) of the Income Tax Regulations (the "Regulations") defines the meaning of a prescribed payment for purposes of subparagraph 56(1)(a)(vi). The current wording of the Regulation does not include payments made under the FER program.
XXXXXXXXXX
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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