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. The tax treatment of payments made by a Province to eligible employers under a COVID-19 Sick-Leave Reimbursement Program. 2. Whether the Province is required to report these payments on an information slip. 3. The tax treatment of sick leave paid to employees by an employer for COVID-19 related leaves. 4. The reporting and withholding requirements for sick leave payments made by an employer.
Position: 1. Payments provided to eligible employers are included in income under subsection 9(1) or paragraph 12(1)(x) of the Act. 2. No. The Province is not required to prepare an information slip to report payments made to eligible employers under the SLRP. 3. Sick leave payments made by an employer to an employee for COVID-19 related leave are required to be included in income under subsection 5(1). 4. Payments included in employment income as salary and wages are subject to income tax, CPP, and EI withholdings, and are reported on a T4 slip.
Reasons: See response.
XXXXXXXXXX 2021-089844
S. Trop
December 2, 2021
Dear XXXXXXXXXX:
Re: Tax treatment and reporting requirements for the Government of XXXXXXXXXX COVID-19 Sick-Leave Reimbursement Program
We are writing in reply to your correspondence of June 16, 2021, where you asked whether the reimbursement made by the Province XXXXXXXXXX (“the Province”) to eligible employers under the Province’s COVID-19 Sick-Leave Reimbursement Program (“SLRP”) is taxable income to the employers. You also asked about the tax treatment and reporting requirements for sick leave payments made by an employer to an employee as required under the Employment Standards Act (XXXXXXXXXX) (“ESA”).
This technical interpretation provides general comments about the provisions of the Income Tax Act (the “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 70-6R11, Advance Income Tax Rulings and Technical Interpretations.
On May 20, 2021, the Province amended the ESA to require employers to provide employees with up to three days of paid leave if they need to stay home because of certain reasons related to COVID-19. Employers are generally required to pay employees the wages they would have earned had they not taken the leave, up to $200 a day for up to three days. The three days do not have to be taken consecutively. Eligible employers are entitled to be reimbursed the amount of the COVID-19 related sick leave payments that they provided to their employees. The SLRP is only available to employers who do not currently provide paid sick leave. The Province will not reimburse employees directly. Employers must submit their claims to XXXXXXXXXX (“XXXXXXXXXX”) to get reimbursed for the sick leave payments provided to their employees. The SLRP is not part of the existing XXXXXXXXXX system.
Tax treatment and reporting and withholding requirements for SLRP amounts made by the Province to an eligible employer.
Generally, when assistance is received in the course of earning income from a business, the application of well-accepted business principles, for the purpose of calculating profit or loss under section 9 of the Act, commonly requires the amount of an expense to be reduced by any reimbursement that relates to the expense incurred.
If the application of these principles does not require the government assistance to be included in income (or to reduce the amount deductible as an expense) under section 9 of the Act it may be included in income under paragraph 12(1)(x) of the Act. Paragraph 12(1)(x) of the Act provides, inter alia, that government assistance received in respect of an outlay or expense by a taxpayer, in a taxation year, in the course of earning income from a business, must be included in income in the year received except to the extent that the amount is not otherwise included in income (under section 9 or another provision of the Act) or one of the other exceptions in subparagraphs 12(1)(x)(v.1) to (viii) of the Act applies.
Since the SLRP amounts received by an employer are likely received in the course of earning income from a business, they should be included in the employer’s income in accordance with subsection 9(1) of the Act.
The Province would not be required to prepare an information slip to report payments made to reimburse eligible employers under the SLRP.
Tax treatment and reporting and withholding requirements for sick leave paid by an employer to an employee.
Employer-paid sick days for COVID-19 related leave are similar to paid sick days that would be provided to an employee under their employment contract for one or more of the same reasons that paid leave can now be provided under the ESA. Employer-provided paid sick days as stipulated by an employment contract would generally be included in employment income under subsection 5(1) of the Act. Where a provincial government sponsors a program that is designed to have employers provide sick leave payments directly to employees, it is our view that the amount of the payment received by the employee would be included in their employment income under subsection 5(1) of Act.
The employer would be required to withhold income tax, Canada Pension Plan contributions, and Employment Insurance premiums when they provide sick leave payments to their employees and report the gross amount of the payments and the withholdings on the employee’s T4 slip as part of salary or wages.
We trust these comments will be of assistance to you.
Yours truly,
Tom Baltkois, CPA, CGA
Acting Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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