4 March 2013 External T.I. 2012-0447371E5 - Payments made by a Union

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: Is an employee in receipt of a taxable benefit where the employee's union reimburses the employer for the employee's share of premiums for various group benefit plans during the period of time when the employee is not working due to illness?

Position: Question of fact, but likely no.

Reasons: Based on the principles of the Fries case, the amounts received from the union are not income from a source and are consequently not taxable under the Act. However, a portion of the union dues paid may not be deductible by the employee pursuant to subparagraph 8(1)(i) and subsection 8(5) of the Act.

XXXXXXXXXX
2012-044737
C. Underhill

March 4, 2013

Dear XXXXXXXXXX:

Re: Payments by Union for Premiums for Group Benefits

We are writing in response to your letter of May 8, 2012, concerning the taxation of the premiums for group benefits. More specifically, you have enquired whether employees would be considered to be in receipt of a taxable benefit where their union reimburses the employer for the employees' share of premiums for various group benefit plans during the period of time when the employees are not working due to illness.

In the situation you described, employees participate in various group benefit plans, which may include group life insurance, accidental death and dismemberment, medical and dental. Both the employer and the employee are legally obligated to pay a portion of the premiums. You have advised us that the terms of the collective agreement provide that when an employee is absent due to illness, the employer pays its share and the employee's share of the premiums for a certain period of time and the union reimburses the employer for only the employee's share. It is also our understanding that during the absence, the employee is not employed by the union.

Our Comments

The determination of whether a payment from a union to its members would be taxable or non-taxable is a question of fact that can only be determined after reviewing all of the facts and relevant information. We are, however, prepared to offer the following general comments which may be of assistance.

Paragraph 3(a) of the Income Tax Act (Act) provides that the income of a taxpayer for a taxation year is the total of all amounts each of which is the taxpayer's income for the year (other than taxable capital gains from the disposition of property) from a source inside or outside Canada including the taxpayer's income for the year from an office, employment, business or property.

Since it appears that the union cannot make a direct payment to the various group benefit plans and the employer is used only as a conduit for the payment of the premiums, it is our view that the payment of the premiums would be considered to have been paid to the employee by the union. In Wally Fries v. Her Majesty the Queen, the Supreme Court of Canada held that payments received by a union member in the form of strike pay were not taxable as "income… from a source" within the meaning of section 3 of the Act. Similarly, it is our view that the payment of the employee's premiums by the union (i.e. payment from union to employee) is not likely income from a source and is not taxable under the Act.

Subparagraph 8(1)(i)(iv) of the Act provides that union dues are deductible in calculating a taxpayer's income from an office or employment to the extent that the dues are not reimbursed. In addition, paragraph 8(5)(c) of the Act provides that union dues are not deductible by the taxpayer in calculating income from an office or employment where the dues are levied for any other purpose not directly related to the ordinary operating expenses of the union.

It is our assumption that the union's payment of the premiums is part of the union's ordinary operating expenses. However, if the payment of the premiums is not part of the union's ordinary operating expenses and the payments are significant, consideration may be given to the application of subsection 8(5) with respect to the employee's deduction of union dues.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch