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. Whether workers' compensation benefits awarded by a workers' compensation board (Board), or similar body, is subject to statutory withholdings. 2. Whether supplementary payments made to an employee in excess of a workers' compensation award is considered income. 3. Whether an advance/loan provided to an employee in anticipation of a workers' compensation award is subject to tax. 4. Whether a deemed interest benefit would apply to an advance made to an employee in anticipation of a workers' compensation award. 5. Who is responsible for issuing the T5007?
Position: 1. No. 2. Yes. 3. Depends. 4. Depends. 5. Depends.
Reasons: 1. A Board awarded benefit will not be subject to statutory withholdings if it is included in income under 56(1)(v). 2. An amount paid in excess of a Board (or similar body) award is treated as employment income and is subject to income tax and CPP withholdings. 3. Where it can be established that an employee received a loan or advance from his or her employer which is to be repaid from anticipated future Board awards, the loan or advance is not considered income to the employee and is not a deductible expense to the employer. 4. CRA has a long-standing position that we will not consider as a taxable benefit any interest that accumulates on advances/loans while waiting for a Board claim decision. 5. Where a workers' compensation claim is adjudicated by a Board (or similar body), the Board issues the T5007 even if the employer makes the payment to the individual. A self-insured employer should report the workers' compensation benefit on a T5007 only when a Board (or similar body) did not adjudicate the claim for compensation.
November 26, 2013
Re: Injury-on-duty leave payments
We are writing in response to your letters received on June 27, 2013, and September 3, 2013, concerning an employer's injury-on-duty (IOD) leave payment program. More specifically, you have enquired whether IOD payments paid to an employee while on injury leave would be subject to income tax withholdings. You have also asked about the tax implications of providing advances to an employee who is waiting for a workers' compensation board (Board) to adjudicate his or her claim.
In the situation you described:
- The employer is subject to the Government Employees Compensation Act.
- For workers' compensation purposes, the employer self-insures for employees who may be injured while on duty. This results in the employer assuming the financial risk for providing workers' compensation benefits to its employees.
- All IOD claims are evaluated and approved or denied by the applicable provincial Board.
- Awards are made according to the provincial Board's legislation.
- Under the employer's collective agreement, the employer is required to pay the employee a percentage of his/her regular pay while the employee is waiting for a Board decision. If the claim is denied by the Board, the employee will be required to reimburse the employer for the entire advance received. If the claim is approved by the Board, any advances made to the employee are immediately offset against the amount awarded by the Board.
- Under the employer's collective agreement, an employee may receive an IOD payment in excess of the amount awarded by the Board.
This technical interpretation provides general comments about the provisions of the Income Tax Act (Act) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Generally, Boards allow certain employers, including those funded by public funds, to self-insure the cost of their Board claims. This results in the self-insured employer paying an employee directly for IOD Board awarded claims.
Advances/loans paid in anticipation of a Board award
Where it can be established that an employee received a loan or advance from his or her employer which is to be repaid from anticipated future Board awards, the loan or advance is not considered income to the employee and is not a deductible expense to the employer. In addition, the amount of the advance/loan equal to the award is not required to be reported on a T4 slip, Statement of Remuneration Paid, since it is not considered to be employment income and no deductions of tax, Canada Pension Plan contributions (CPP), and Employment Insurance premiums (EI) are required. However, an employer should report the amount of the advance/loan that exceeds the award on a T4 slip in the year the award is decided and deduct income tax, CPP and EI. For more information, go to www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/spcl/cmpnstn/wcb-eng.html.
Interest benefit on advance/loans paid in anticipation of a Board award
When an employer advances/loans an amount to an employee while waiting for a Board claim, it is the CRA's long-standing position that any interest accumulating on those advances/loans will not be considered a taxable benefit to the employee.
IOD payments made after an approved Board claim
Generally, a Board awarded amount paid to an injured employee directly from an employer that is self-insured is included in a taxpayer's income under paragraph 56(1)(v) of the Act. There is an offsetting deduction in computing taxable income under subparagraph 110(1)(f)(ii) of the Act. Such compensation is not considered salary, wages, or other remuneration, and is not subject to the withholding of income tax, CPP and EI.
If a Board adjudicates the claim, the T5007, Statement of Benefits, must be issued by the Board. This occurs even if a self-insured employer makes the Board adjudicated payments to the employee. Where the claim is not adjudicated by a Board, the person paying the award (e.g. employer, insurance company) should issue the T5007. For more information, see CRA Guide T4115, T5007 Guide Return of Benefits.
Only amounts paid under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability, or death are included in income under paragraph 56(1)(v) of the Act. Any amount paid in excess of the Board award is treated as employment income and is subject to income tax and CPP withholdings. For more information on CPP and EI, see CRA Guide T4001, Employers' Guide Payroll Deductions and Remittances, and go to http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/clcltng/spcl/cmpnstn/wcb-en....
We trust these comments will be of assistance.
Nerill Thomas-Wilkinson, CPA, CA
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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