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.
Principal Issues: Is the amount labelled "ex gratia payment" received by an employee from an employer a taxable amount.
Position: Question of fact.
Reasons: A payment from an employer is likely to be taxable in the hands of the employee recipient. However, there may be situation where the payment is non-taxable.
December 20, 2001
Vancouver Tax Services Office HEADQUARTERS
Debra Davenport Jacques E. Grisé
Trust Compliance Section 462-22 957-2059
2001-011400
Ex Gratia Payment
This is in reply to your memorandum of December 6, 2001, concerning a request made by XXXXXXXXXX.
In XXXXXXXXXX received an amount of $XXXXXXXXXX from his employer, the Government of Canada, from which income tax of $XXXXXXXXXX was deducted. This information was recorded on a T4A slip, a copy of which was attached with your memorandum. The amount in question was seemingly labelled as an "ex gratia lump sum." XXXXXXXXXX has referred you to a document from this Directorate (# 9210255) where, in the specific circumstances under consideration, we were of the view that the particular ex gratia payment was not taxable in the hands of the employee and, on the basis of that particular document, has requested that we refund to XXXXXXXXXX the $XXXXXXXXXX income tax withheld with interest.
We assume XXXXXXXXXX was given credit for the $XXXXXXXXXX income tax deduction on his XXXXXXXXXX income tax return and that the amount of $XXXXXXXXXX was included in computing his income for that year. If such is the case, the request being made by XXXXXXXXXX is effectively to exclude the latter payment from XXXXXXXXXX income.
As you have noted, by reference to another document (# 9418166) from this Directorate, an ex gratia payment is not necessarily exempt from tax. The purpose of a payment rather than the label attached to the payment will determine if a particular payment is required to be included or excluded from the recipient's income.
An employer is required to withhold income tax from a payment made to an employee or former employee that the employer considers taxable in the hands of the employee or former employee and to report the amount paid and withheld on an information slip. On the basis of an employer's action of withholding income tax and reporting amounts on an information slip, we presume the amount in question is taxable in the hands of the recipient. The onus is on the recipient of such a payment to provide sufficient information and evidence to refute the presumption that the amount is taxable.
Prior to offering any further comments on XXXXXXXXXX particular situation all the particular facts relating to the situation would need to be known. In the course of considering an adjustment to XXXXXXXXXX income, we suggest that you obtain all the information and documents relating to the payment in question. If, after reviewing and analysing the facts, you require our assistance in determining the tax consequence of the payment, we will be pleased to give you our opinion.
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 Agency'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. A copy will be sent to you for delivery to the client.
John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
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