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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
1. Where coverage for a self-employed individual is optional, are the premiums for WCB deductible?
2. Where coverage for a self-employed individual obligatory, are the WCB premiums deductible?
3. Where the coverage for an executive officer of a corporation optional, are the WCB premiums deductible?
4 Where the coverage for WCB for an executive officer optional, is there a taxable benefit?
3. Question of fact No, if the executive officer is receiving the WCB coverage as a shareholder
4. Question of fact business decision related to need for WCB.
Reasons FOR POSITION TAKEN:
Position in 2001-0079857
October 23, 2001
SASKATOON TSO HEADQUARTERS
C. Tremblay, CMA
Attention: Sandra MacNevin
Business Enquiries- Audit Division
Workers' Compensation (WC) Premiums
This is in response to your memorandum of May 9, 2001, requesting our opinion on whether the premiums paid to the Saskatchewan WC Board are deductible under the Income Tax Act (the "Act"). WC legislation indicates that certain self-employed individuals are required to register for the WC and pay the appropriate premiums, while others have the option of registration. The legislation also offers executive officers of corporations the option of WC coverage in certain circumstances. We apologize for the delay in our response. You asked four specific questions:
When coverage for a self-employed individual is optional, are the premiums for self-coverage deductible from business income by the self-employed person?
When coverage for a self-employed individual is obligatory, are the premiums for self-coverage deductible from business income by the self-employed person?
In our view, WC premium payments by a self-employed individual on his own behalf, whether they are mandatory under the relevant statutes or are made optionally, are deductible pursuant to subsection 9(1) of the Act. It would be difficult to argue that the premiums are not an outlay made for the purpose of gaining income from that business. Further, since any compensation received under a WC 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 as defined under subsection 248(1) of the Act. This is so even though the individual by virtue of subparagraph 110(1)(f)(ii) of the Act, is allowed an offsetting deduction.
When the WC coverage is for an executive officer of a corporation and the coverage is optional is the premium deductible by the corporation?
When the WC coverage is for an executive officer of a corporation and the coverage is optional is there a taxable benefit to the executive officer?
In our opinion, in a situation where a corporation employer voluntarily pays a premium for an executive officer, whether the premium is added to his or her income as a taxable benefit will depend on whether the individual is receiving the coverage as an employee or a shareholder. If the executive officer is receiving the coverage as a shareholder of the corporation, the WC premiums are taxed in the individual's hands pursuant to subsection 15(1) of the Act.
Subject to the usual reasonableness test, the WC premium paid on behalf of an employee is an allowable deduction in computing the income of the employer. However, the WC premium is not deductible to the employer if the executive officer receives the benefit in his or her capacity as a shareholder since the payment is not incurred by the corporation for the purposes of gaining or producing income from a business or property as required under paragraph 18(1)(a) of the Act. Where the executive director is both a shareholder and an employee, the appropriate treatment is determined by the capacity under which he or she received the benefit. Should the individual become a claimant, the amount received would be taxable income to the individual under paragraph 56(1)(v) of the Act with a corresponding deduction under paragraph 110(1)(f) of the Act.
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 CCRA'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. You should make request for this latter version to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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