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. Is compensation received from an employer pursuant to an agreement made under section 63 of the Workplace Safety and Insurance Act taxable under the provisions of the Income Tax Act? 2. Does the employer withhold tax on such payments?
Position: 1. No. A payment or payments received "under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death" is 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. The compensation payment or payments may be received either from a compensation board or from the employer or former employer of the person, as the case may be. 2. No, such compensation is not considered salary, wages or other remuneration and subsection 153(1) of the Act does not require any withholding from compensation paid pursuant to a workers' compensation law. The employer must issue a T5007 information slip to the recipient pursuant to subsection 232(1) of the Regulations.
Reasons: IT-202R2 and the applicable legislation.
Dear XXXXXXXXXX :
Thank you for your correspondence of June 15 and 27, 2011, concerning an agreement between you and your employer under the Ontario Workplace Safety and Insurance Act. Under the agreement, a fixed sum will be provided to your employer from the Workplace Safety and Insurance Board and then paid to you in settlement of your ongoing claim. You ask whether the compensation payment received from your employer will be subject to the withholding of income tax under the Income Tax Act.
Workers' compensation benefits are included in a taxpayer's income according to paragraph 56(1)(v) of the Income Tax Act. Subparagraph 110(1)(f)(ii) states these amounts are then deducted when calculating a taxpayer's taxable income for the year. As a result, there are no income tax implications related to including the income. However, because the amount is included in net income, entitlements under income-tested programs, such as the child tax benefit, may be affected.
As explained in Interpretation Bulletin IT-202R2, Employees' or workers' compensation, when compensation payments under federal or provincial employees' or workers' compensation legislation are paid directly to an employer, which in turn pays the employee, the employee reports the amounts as income for the tax year and is entitled to the offsetting deduction. Such compensation is not considered salary, wages, or other remuneration, and is not subject to the withholding of income tax. Since the employer is the payer of the workers' compensation benefits, it must issue a T5007 information slip to the recipient. For more information, please refer to Interpretation Bulletin IT-202R2, which is available on the Canada Revenue Agency (CRA) Web site at www.cra.gc.ca/E/pub/tp/it202r2.
If you require more information on this topic, I invite you to call Mr. Tom Posadovsky, an official with the Income Tax Rulings Directorate, at 613-952-8283. The CRA accepts collect calls. Mr. Posadovsky is aware of our correspondence and will be pleased to help you.
I appreciate the opportunity to respond to your concerns.
Gail Shea, P.C., M.P.
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