16 May 2013 External T.I. 2013-0476281E5 - Union-Paid Pension Contributions

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 an employee is required to include in income the value of payments made on his or her behalf by a union, for RPP contributions during a legal one day strike?

Position: Question of fact, but likely no.

Reasons: Jurisprudence and previous positions

XXXXXXXXXX
2013-047628
T. Baltkois

May 16, 2013

Dear XXXXXXXXXX:

Re: Payments by a Union

We are writing in response to your email of January 23, 2013, concerning the taxation of contributions made to a registered pension plan ("RPP"). In the situation described, employees have elected to buy back pensionable service relating to time while on strike. The funds required to buy back this service (i.e., both the employer's and the employee's share of RPP contributions) were initially provided to the employees' pension plan by the employer. The employer was subsequently reimbursed for this outlay by the union, on behalf of its members. It is our understanding that the employees in question were 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.

You have indicated that where an employee elects to buy back pensionable service related to a strike, the employee is responsible for both the employer and employee components of the RPP contribution. That is, the employer does not have a legal obligation to make contributions to the employee's RPP under these circumstances.

Subsection 3(a) of the Income Tax Act ("the 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.

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 because they did not constitute "income…from a source", within the meaning of section 3 of the Act. Similarly, it is our view that payments made by a union for its members' portion of RPP contributions during a strike are not income from a source and are therefore not taxable to members under the Act. This would also be the case where the union pays for the employer's portion of RPP contributions in the same circumstances, provided that the employer did not have a legal obligation to make RPP contributions.

Where an employer has a legal obligation to make RPP contributions during a strike, it is our view that payments made by a union on behalf of its members, either directly or as a reimbursement to the employer, for an employer's RPP contributions would be treated in the same manner as if the employer had made the RPP contributions directly. Employer RPP contributions are specifically excluded under subparagraph 6(1)(a)(i) of the Act and would therefore not be taxable to the employee.

Although the payment by the union may not be included in the member's income, the payment may impact the member's deduction of union dues. Subparagraph 8(1)(i)(iv) of the Act provides that union dues are only 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 a taxpayer in calculating income from an office or employment where the dues are levied for a purpose not directly related to the ordinary operating expenses of the union.

If the payment of RPP contributions 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) of the Act 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