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 a workers' compensation non-economic loss award for pain and suffering must be included in income under 56(1)(v) and reported on a T5007 slip.
Position: It is a question of fact but likely no.
Reasons: A lump sum award for pain and suffering is likely not considered compensation received as a "workers' compensation benefit".
XXXXXXXXXX
2013-048685
Kathryn McCarthy
August 8, 2013
Dear XXXXXXXXXX:
Re: Workers' compensation - non-economic loss award for pain and suffering
We are writing in response to your letter dated April 24, 2013, concerning a non-economic loss award which you received for pain and suffering. You described it as a final lump sum settlement that was awarded to you under a provincial workers' compensation law. You enquired whether the amount of the award must be included in your income under paragraph 56(1)(v) of the Income Tax Act ("Act"), and reported on slip T5007, Statement of Benefits.
Our Comments
Written confirmation of the income tax implications inherent in a particular transaction is provided by the Income Tax Rulings Directorate only where the transaction is proposed and is the subject matter of an advance income tax ruling request. More information is available in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. You can get this information circular at www.cra.gc.ca/formspubs/menu-e.html. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable tax services office during the course of an income tax audit which, if undertaken, would be carried out after you have prepared and filed your income tax return for the year. However, we are prepared to provide the following general comments that may be of assistance.
Generally the amount of compensation received in the year from a Canadian employees' or workers' compensation board in respect of an injury, disability, or death is included in computing the taxpayer's income for the year under paragraph 56(1)(v) of the Act. However any compensation so included may generally be deducted in computing the taxpayer's taxable income for the year under subparagraph 110(1)(f)(ii) of the Act. Although the compensation is not taxed, it may negatively impact a person's entitlement to certain income tested benefits.
"Compensation" is not defined for the purposes of paragraph 56(1)(v) of the Act. In the context of workers' compensation plans, it is our view that "compensation" refers to "workers' compensation benefits." The Canadian Association of Workers' Compensation Boards lists the following as common "workers' compensation benefits": wage loss benefits; permanent disability benefits; dependency benefits; and rehabilitation benefits. This is consistent with the Canada Revenue Agency's position that the amount of an award for job training or counselling that is not paid as part of, or in lieu of, wage replacement benefits is not reported on a T5007 slip. Therefore, it would appear that a lump sum award for pain and suffering is not a "workers' compensation benefit" and would not be required to be included in income under paragraph 56(1)(v) of the Act or reported on a T5007 slip.
We trust our comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson, CPA, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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