18 July 1990 Administrative Letter 900186 F - R.C.M.P. Act - Forfeiture of Pay

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.

July 18, 1990

Dear Ms. Frost:

Re: R.C.M.P. Act - Forfeiture of Pay Subsection 5(1) of the Income Tax Act (the "Act")

This is in reply to your letter of July 13, 1989 regarding the taxation of pay forfeited or lost by a member of the R.C.M.P. as the result of disciplinary action.  We apologize for the delay in responding.

You have asked our view as to whether or not a member of Royal Canadian Mounted Police Force (the "Force") who was assessed a "loss of pay" under subsection 36(1) of the Royal Canadian Mounted Police Act, R.S.C. 1985, c. R-9 as amended (the "old R.C.M.P. Act") is required to pay income tax on the amount of the lost salary. You also enquired whether the change in subsection 45.12(3) of the Royal Canadian Mounted Police Act, R.S.C. 1985, c. R-10 as amended (the "new R.C.M.P. Act") from the term "loss of pay" to the term "forfeiture of pay" would alter our view.

Under subsection 36(1) of the old R.C.M.P. ACT, a member found guilty of a major service offence could be assessed a number of penalties, including a "fine not exceeding five hundred dollars" or a "loss of pay for a period not exceeding thirty days".  Under the new R.C.M.P. Act, subsection 45.12(3) similarly provides for a variety of sanctions including a "forfeiture of pay for a period not exceeding ten work days".

In our view, there is no difference in substance between a fine and a loss of pay under the old R.C.M.P. Act for a major service offence.  A "loss of pay" appears to be simply a way of measuring the quantum of the penalty and is, in essence, a fine.  In both situations, the member continues to perform services rather than being suspended without pay and is punished for a disciplinary offence by having an amount deducted from salary.  The term used to describe the deduction should not affect the way that the amount deducted is treated for tax purposes.  A number of legal and lay dictionaries equate a forfeiture with a penalty or a fine.

Subsection 5(1) of the Income Tax Act provides that:

     "a taxpayer's income for a taxation year from an office or employment is the salary, wages and other remuneration, including gratuities, received by him in the year".

Receipt of salary need not be actual physical receipt but can include constructive receipt of amounts deducted from the taxpayer's pay.  The courts have held that it is sufficient that the amount of salary was paid by the employer either to the employee himself or for his benefit, or that it was handed over to a third party under a federal or provincial statute.  There need be no agreement or concurrence between the employer and employee.

In our view, a "loss of pay" under the old R.C.M.P. Act is taxable to a member under subsection 5(1) of the Income Tax Act. It is also our view that the change in terminology from a "loss of pay" to a "forfeiture of pay" under the new R.C.M.P. Act does not alter the above treatment.

We trust that the above comments are of assistance to you.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch