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. What is CRA's policy on the treatment of injury compensation payments made by an Employer under collective agreements since the Whitney Court case? 2. Whether paragraph 4 of IT-202R2 would still represent the Agency's current administrative practice with respect to the provisions of paragraph 56(1)(v).
Position: 1.CRA's policy has not changed as a result of the Whitney case. 2. Yes
Reasons: 1. Payments received "under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death" are included in a taxpayer's income pursuant to paragraph 56(1)(v) of the Act. The amount so included is deductible pursuant to subparagraph 110(1)(f)(ii) of the Act. . This treatment applies only where the taxpayer is entitled to payments under these compensation laws. In the Whitney case, the taxpayer was factually determined not to be entitled to any qualifying statutory compensation. As a result, she did not fit within the scope of ¶4 of the IT Bulletin. The Federal Court of Appeal agreed that the benefits received by Mrs. Whitney were taxable as employment income under section 5 of the Act. 2. Although it is acknowledged that the wording of ¶4 of the IT Bulletin is not as clear as it might be, it is our view that the administrative position described therein is still a reasonable approach to the taxation of injury compensation benefits received in the context described. .
2007-023960
XXXXXXXXXX Joy Bertram,
CGA, CPA(vt)
August 2, 2007Dear XXXXXXXXXX,
Re: Injury Compensation Payments
We are writing in response to your telephone call of May 22 and your email of June 6, 2007 requesting the Canada Revenue Agency's ("CRA's") comments on its administration of paragraph 56(1)(v) and sub-paragraph 110(1)(f)(ii) of the Income Tax Act (the "Act").
In light of the Federal Court of Appeal's decision in Her Majesty the Queen v. Irene Whitney 2001 DTC 7145 you have inquired whether paragraph 4 of Interpretation Bulletin IT-202R2, "Employees' or Workers' Compensation" still reflects the CRA's administrative practice.
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 70-6R5, "Advance Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.
Payments received "under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death" are included in a taxpayer's income pursuant to paragraph 56(1)(v) of the Act. The taxpayer is entitled to a deduction from income for the amount so included pursuant to subparagraph 110(1)(f)(ii) of the Act. This treatment applies only where the taxpayer is entitled to payments under these compensation laws. Paragraph 4 of Information Bulletin IT-202R2 was intended to apply to situations in which an employee is entitled to compensation under a qualifying statutory program, but receives full salary from his or her employer, likely pursuant to the terms of a collective agreement. In such situations, the statutory benefit might be paid directly to the employer, which in turn pays the employee his or her entitlement. In those situations, it was determined that the employee should be entitled to the income inclusion and offsetting deduction treatment to the extent of the statutory entitlement, notwithstanding that the payment comes from the employer.
In the Whitney case, the taxpayer was factually determined not to be entitled to any qualifying statutory compensation. As a result, she did not fit within the scope of ¶4 of the IT Bulletin. The Federal Court of Appeal agreed that the benefits received by Mrs. Whitney were taxable as employment income under section 5 of the Act.
Although it is acknowledged that the wording of ¶4 of the IT Bulletin is not as clear as it might be, it is our view that the administrative position described therein is still a reasonable approach to the taxation of injury compensation benefits received in the context described.
We trust that these comments will be of assistance.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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