2012 Ruling 2011-0431221R3 - Paragraph 56(1)(v) ITA

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: Whether compensation is received by a worker, under the meaning set in paragraph 56(1)(v) of the Income Tax Act, at the time that accumulated annuity funds are transferred to an external financial services provider. Whether the Board is required to produce information returns under 232(1) of the Income Tax Regulations when this transfer takes place.

Position: No. No.

Reasons: In our view, constructive receipt has not occurred on the transfer of the annuity funds.

XXXXXXXXXX
2011-043122

XXXXXXXXXX, 2012

Dear XXXXXXXXXX,
Re: XXXXXXXXXX Workers' Compensation Health and Safety Board
Advance Income Tax Ruling Request

This is in reply to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above-referenced entity.

We understand that, to the best of your knowledge and that of the Board involved, none of the issues involved in this advance income tax ruling:

(i) is in an earlier return of the Board or of a related person;
(ii) is being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the Board or a related person;
(iii) is under objection by the Board or a related person;
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
(v) is the subject of a Ruling previously issued by the Income Tax Ruling Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Definitions

"Regulations" means the Income Tax Regulations, CRC, c 945, as amended to the date of this advance income tax ruling;
"Board" means XXXXXXXXXX Workers' Compensation Health and Safety Board; "Workers' Compensation Act" means Workers' Compensation Act XXXXXXXXXX;

"annuity fund" means the total amount of accumulated capital and accrued interest set aside to provide for a worker when the worker becomes entitled to receive benefits under Part 1 of the Old Age Security Act, R.S.C. 1985, c. 0-9; and

Facts

1. The Board was created under the Workers' Compensation Act to administer workers' compensation and occupational health and safety in XXXXXXXXXX

2. The Board is an entity exempted from income taxes under paragraph 149(1)(d) of the Act.

3. The address of the Board is: XXXXXXXXXX.

4. The Board's business number is XXXXXXXXXX.

5. Pursuant to section XXXXXXXXXX of the Workers' Compensation Act, when a worker has received compensation benefits for the same work-related injury for a period of at least XXXXXXXXXX months, an amount equal to XXXXXXXXXX% of the workers' compensation benefits paid is set aside in a retirement annuity fund.

6. The XXXXXXXXXX% contribution to the annuity fund is not deducted from the benefits provided, but is over and above the compensation benefits paid to the worker.

7. Interest is calculated daily and compounded annually on the annuity fund contributions and is provided at the 10-year Government of Canada Bond rate.

8. An annuity fund therefore consists of accumulated annuity contributions and accrued interest.

9. Money from the annuity fund is payable at the later of: (a) the age at which the employee is entitled to claim benefits under the Old Age Security Act, or; (b) the date compensation ceases to be payable under the Workers' Compensation Act.

10. If, at the time when a worker is entitled to an annuity described above, a worker's accumulated annuity funds are below the threshold set by the Board, a lump-sum payment is made to a worker. This lump-sum payment settles the rights of the worker under the Workers' Compensation Act.

11. Alternatively, if, at the time when a worker is entitled to an annuity described above, a worker's accumulated annuity funds are above the threshold set by the Board, the worker chooses an annuity from an external investment organization and the Board then transfers the accumulated annuity funds directly to the selected external investment organization. In this case the beneficiary does not directly receive any amount at the time of the transfer.

12. There is no restriction placed on the worker as to the choice of the term of the annuity purchased.

Proposed transactions

Pursuant to the Workers' Compensation Act, at the time when a worker is entitled to an annuity described above, and the worker's accumulated annuity funds are above the threshold set by the Board, the Board will transfer the accumulated annuity funds directly to the selected external investment organization.

Purpose of the proposed transactions

The annuity funds are accumulated and transferred by the Board to the external investment organization in order to provide retirement income in the form of an annuity to the worker.

Rulings given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:

We confirm that no compensation is considered to have been received, by the meaning set in paragraph 56(1)(v) of the Act, by the worker at the time of the transfer of accumulated annuity funds to an external investment organization.

Additionally, we confirm that the Board would not be considered to have paid any amount to the worker on the transfer of accumulated annuity funds to the external investment organization and is therefore not required to produce any information returns at that time under subsection 232(1) of the Regulations.

Finally, section 232 of the Regulations requires every person who pays an amount for workers' compensation benefits to file an information return to report those payments. The external investment organization which holds the annuity is therefore responsible for preparing a form T5007 each year for an injured worker, or for his or her survivor, reflecting the amount of the workers' compensation payments paid throughout the year. The above two rulings are given on the condition that the external investment organization that receives the transfer of funds is aware of and assumes the responsibility for filing forms T5007 on the payment of the annuities.

Nothing in this letter should be construed as implying that the Canada Revenue Agency has reviewed, accepted or otherwise agreed to any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.

The above noted rulings are based on the Act and the Regulations in their present form and do not take into account any proposed amendments to the Act or the Regulations which, if enacted, could have an effect on the rulings provided herein.

These rulings are based solely on the facts and proposed transactions described above and are subject to the limitations and qualifications set forth in Information Circular 70-6R5 issued on May 17, 2002. These rulings are binding on the Canada Revenue Agency provided that the proposed transactions are completed on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch