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.
Principal Issues: (1) Should retroactive WCB benefit payments be reported on a T5007 in the year of receipt or in the year to which the benefit relates? (2) Will a retroactive WCB benefit payment be considered as qualifying retroactive lump sum for purposes of section 110.2 of the Income Tax Act.
Position: (1) WCB benefits should be reported on a T5007 in the year of receipt. (2) No
Reasons: Wording of the legislation
June 20, 2006
HEADQUARTERS HEADQUARTERS
Business Requirements and Technical Services Income Tax Rulings
Information Returns Section Directorate
Kimberly Duval, CA
Attention: Daniel Beaudoin (613) 599-6054
2006-018953
Retroactive Worker's Compensation Payments
This is in response to your e-mail correspondence of June 5, 2006, requesting our comments on the reporting of certain retroactive worker's compensation payments paid by the Worker's Compensation Board of XXXXXXXXXX (the "WCB") XXXXXXXXXX.
On behalf of the WCB, you have asked us to confirm that these lump sum payments should be reported on a T5007 in the year of payment and not in the taxation year to which the benefit relates. In addition, you have asked for our comments on whether these retroactive WCB payments will be considered a "qualifying amount" for purposes of section 110.2 of the Income Tax Act (the "Act").
Payments received by an individual under a workers' compensation law of Canada are included in income under paragraph 56(1)(v) of the Act. An offsetting deduction in computing taxable income may then be claimed by the individual under subparagraph 110(1)(f)(ii) of the Act. While the payments will effectively be non-taxable, the inclusion of these amounts in income may impact on the recipients' entitlement to certain federal tax credits.
Where a payment is made in one taxation year but relates to several years of WCB benefits, the entire lump sum amount is reported on a T5007 and included in the individual's income in the year of receipt. The law does provide for a limited type of income tax relief for qualifying retroactive lump sum payments where the payment is a "qualifying amount" as defined under section 110.2 of the Act. By definition, the term "qualifying amount" specifically excludes an amount to the extent the individual was eligible for a deduction under paragraph 110(1)(f) of the Act. As such, retroactive WCB payments are not considered qualifying amounts for purposes of the definition in section 110.2 of the Act.
As an additional comment, it is our position that pre-judgement interest on benefits included in income pursuant to paragraph 56(1)(v) of the Act are not taxable. Therefore, the amount of interest included in these retroactive payments, if any, does not have to be included in the income of the recipients nor will the WCB be required to prepare information slips in respect of the interest portion of the payment.
We trust that these comments will be of assistance.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. 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 electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
John Oulton, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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