13 February 2001 External T.I. 2001-0066985 - WCB, earned income, eligible service

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:

1) Will a period while an employee is off collecting WCB qualify for eligible service under an RPP?

2) Can WCB income be included in determining an individual's earned income under subsection 146(1) of the Act?

Position:

1) Question of fact.

2) No.

Reasons:

1) There is nothing in the Regulations preventing such service from being eligible. We would have to review the terms of the particular plan.

2) WCB income is not included in the earned income definition.

XXXXXXXXXX 2001-006698
M. P. Sarazin, CA
February 13, 2001

Dear Sir:

Re: Workers' Compensation Board Payments and Earned Income for RRSPs

This is in reply to your letter of December 20, 2000, which was forwarded to us by the Surrey Tax Centre, requesting our views regarding Workers' Compensation Board ("WCB") payments qualifying as pensionable earnings for purposes of a registered pension plan ("RPP") or as earned income for purposes of a registered retirement savings plan ("RRSP").

Under a collective agreement between your Board and its teachers, a teacher is paid his or her full salary while he or she is absent due to work-related injury as long as he or she has available sick leave credits. The sick leave credits are only reduced for the difference between the teacher's regular pay and the WCB benefit received by the Board in respect of the injured employee. When the teacher's sick leave is exhausted, the teacher is entitled to receive an amount equal to the WCB benefits received by the Board in respect of the injured employee.

You are of the view that the income that represents WCB payments which is not subject to tax should not be included in pensionable income for purposes of RPPs or in earned income for purposes of RRSPs.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

The determination of whether an employee would be eligible to continue participating in an employer's RPP while the employee is off work due to a work-related injury that entitles the employee to WCB benefits would require a review of the terms of the particular RPP. Under subparagraph 8503(3)(a) of the Income Tax Regulations, eligible service can include a period of disability of the member where the member is not connected with an employer who participates in the RPP. Consequently, where the terms of the RPP allow for it, a member that is off work due to a work-related injury may continue to accrue eligible service during the absence period.

The Agency's general views regarding WCB benefits are expressed in Interpretation Bulletin IT-202R2 titled "Employees' or workers' compensation". You will note that the scenario described in your collective agreement is addressed in paragraph 4 of IT-202R2. The WCB portion of the payments made by an employer to an employee that is off work due to a work-related injury is included in income under paragraph 56(1)(v) of the Income Tax Act (the "Act") and the excess amount paid by the employer is included in the employee's employment income under subsection 5(1) of the Act. (The WCB payment included in income under paragraph 56(1)(v) of the Act is not subject to tax as an offsetting deduction may then be claimed in computing taxable income under subparagraph 110(1)(f)(ii) of the Act.)

Paragraph (b) of the definition of "earned income" in subsection 146(1) of the Act states that earned income for purposes of the RRSP provisions includes an amount included in a Canadian resident individual's income under paragraphs 56(1)(b), (c), (c.1), (c.2), (g) or (o) of the Act. Since the paragraph does not include the income included under paragraph 56(1)(v) of the Act, WCB income is not included in earned income for purposes of computing an individual's RRSP deduction limit.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate