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 ISSUE:
Whether premiums in respect of workers' compensation are deductible in computing income from a business for a self-employed individual.
Position: Yes.
Reasons:
Deductible outlay incurred for the purpose of earning income from the business.
May 8, 2001
Calgary Tax Service Office HEADQUARTERS
Harry Hayes Building A. Seidel, CMA
(613) 957-2058
Attention: Della McKee
2001-007985
Workers' Compensation Premiums
This is in reply to your memorandum dated April 10, 2001, in which you requested our comments with respect to the deductibility of workers' compensation premiums by a self-employed individual. Our response is based on the assumption that the self-employed individual is carrying on business in Alberta.
Background
A self-employed individual carries on a business and has no employees. The individual pays premiums in respect of workers' compensation under the Workers' Compensation Act of Alberta.
Issues
Are these premiums deductible for income tax purposes? Would deductibility be determined by whether or not the premiums are required by law in the jurisdiction in which the business is carried on versus a payment that the self-employed individual chooses to make?
Alberta's Workers' Compensation Act
Subsection 10(1) of the Workers' Compensation Act of Alberta (the "WCAA") provides that, "subject to section 11, an employer, a partner in a partnership, a proprietor and a director of a corporation are not workers for the purposes of this Act unless they apply to the Board in accordance with the regulations to have the Act apply to them as workers and the Board approves the application."
Paragraph 18(1)(a) of the Income Tax Act (the "Act") prohibits the deduction of an outlay or expense except to the extent that the outlay or expense was made or incurred for the purpose of gaining or producing income from a business or property. Where a self-employed individual applies to the Workers' Compensation Board to have the provisions of the WCAA apply to himself/herself as a "worker", as defined in subsection 1(1) of the WCAA, to ensure that there is sufficient income to replace the income from the business, it would be difficult to argue that the premiums are not an outlay made for the purpose of gaining income from that business.
Paragraph 18(1)(c) of the Act prohibits the deduction of an outlay or expense to the extent that it may reasonably be regarded as having been made or incurred for the purpose of gaining or producing exempt income. "Exempt income" is defined in subsection 248(1) of the Act and includes any property received by a person in circumstances that, because of any provision of Part I of the Act, is not included in computing a person's income. Since any compensation received under a workers' compensation law of a province in respect of an injury, disability or death is included in income pursuant to paragraph 56(1)(v) of the Act, these amounts would not be "exempt income". This would be so even though the individual would be entitled to an offsetting deduction under subparagraph 110(1)(f)(ii) of the Act.
We hope our comments are of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at 613 957-0682. The severed copy will be sent to you for delivery to the client.
John Oulton, CA
Section Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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