18 April 2001 External T.I. 2001-0078285 - REPAYMENT OF DISABILITY BENEFITS

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:

Whether repayment of disability benefits received from insurance company are deductible in a specific situation.

Position TAKEN:

No provisions in the Act that allow it. However, there is relief pursuant to subsection 56(8) and section 120.3 of the Act.

Reasons: N/A

XXXXXXXXXX 2001-007828
T. Young, CA
April 18, 2001

Dear XXXXXXXXXX:

Re: Repayment of Payments Received under Long-term Disability Plan

This is in reply to your letter dated March 29, 2001, requesting our opinion concerning the repayment of benefits received under a long-term disability plan.

In your letter, you stated that the taxpayer has been receiving long-term disability benefits for the last four years. Because the long-term disability premiums were paid by the taxpayer, the benefits are not taxable. The taxpayer has recently received a lump sum Canada Pension Plan ("CPP") disability benefit covering the four-year period. As a result, the taxpayer is required to repay to the insurance company a portion of the long-term disability benefits equal to the CPP lump sum. You have asked us if the taxpayer is able to deduct the repayment from the income.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4, dated January 29, 2001. Where the particular transactions are completed, as in your situation, the enquiry should be addressed to the relevant Tax Services Office. Also, it would be necessary to review all relevant documentation before a determination of the tax implications could be made. Therefore, we can only provide you with the following general comments.

There are no provisions in the Income Tax Act (the "Act") that allow for a deduction from income with respect to the repayment of non-taxable long-term disability benefits. However, subsection 56(8) of the Act allows, at the taxpayer's option, CPP benefits received in the year relating to prior years to be excluded from income (except where the prior years' benefits are less than $300). Pursuant to section 120.3 of the Act, the taxpayer will be required to pay Part I tax relating to the prior years calculated as the difference between the taxpayer's actual tax liability for those years and the amount of tax that would have been payable had the prior years' CPP benefits been received in those years. The net result is that the taxpayer will have paid the same amount of income tax that would have been paid had the CPP disability pension had been received and the long-term disability benefits reduced accordingly in each of the prior years.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

- 2 -