19 May 1992 Income Tax Severed Letter 9210475 - Attendant's allowances — Workmen's Compensation

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

SUBJECT: ATTENDANT'S ALLOWANCES SECTION: 56(1)(v), 5(1)]

May 19, 1992

North York District Office Business and General
Mr. Bob Whitefield Division
Chief of Public Affairs M. Eisner
(613) 9572138
921047
Attendants' Allowances - Workmen's Compensation

This is in reply to your memorandum of April 2, 1992 in which you asked for our views on the tax treatment of an attendant's allowance paid by the Worker's Compensation Board of Ontario (the Board). Your concern relates to correspondence you attached which includes information on the Allowance. We also wish to note that we have discussed attendant's allowances with XXX of the Board who authored one of the letters you enclosed.

The circumstances concerning the payment of the allowance are set out below:

• 1. Under paragraph 52(1)(c) of the Worker's Compensation Act of Ontario, the Board will accept entitlement for an attendant's allowance when a worker sustains a degree of helplessness due to permanent disability. Examples of workers who are so entitled are paraplegics and quadriplegics. Normally, the attendant's allowance is paid directly to the worker who is then responsible for hiring an attendant. In many cases a family member (normally the spouse) acts as the attendant.
• 2. Attendant's allowances have been paid by the Board for some time. However, a concern brought to the attention of the Board was the method of calculating the attendant's allowance which apparently did not accurately reflect the actual cost of attendant care. As a consequence of this concern an "Activities of Daily Living Scale" was developed for the purposes of determining the amount of an allowance that would be paid to an injured worker effective July 1, 1989.

Under this scale, payments are generally made to a worker based on the amount of services that it is expected that the worker will require during a time frame.

• 3. The amount of an attendant's allowance that is paid to a worker includes an amount in respect of the employer's portion of unemployment insurance and Canada pension plan contributions as well as any amount that may be assessed to the injured worker by the Board in respect of the attendant.

With respect to the above information, a letter you enclosed from XXX refers to two cases. The first involves a retroactive payment of XXX which relates to a time period commencing XXX. In this situation, the letter indicates that expenses (payroll benefits, a Board assessment, and salary and wages) were incurred by the injured worker in an amount equal to the retroactive payment. In the second case, a similar retroactive payment was made although it involved a time period commencing in 1990.

XXX has referred to both of the above situations as being businesses with the income of each business being the attendant's allowance and the expenses being the salary paid to an attendant and the related payroll benefits.

Our Comments

It appears that some confusion over the tax treatment of an attendant's allowance has arisen because, as indicated in 2. above, the allowance is based on the requirement for services rather than actual amounts paid to an attendant. However, notwithstanding this point, it is our view that there is no business because no commercial activity is involved. Rather, it is our view, subject to the comments below on interest, that a retroactive payment or periodic payments made by the Board in respect of an attendant's allowance represents "compensation" to an injured worker for the purposes of paragraph 56(i)(v) of the Act and is, accordingly, included in income for tax purposes under that provision in the year received. Of course, the injured worker would be entitled to the offsetting deduction under subparagraph 110(1)(f)(ii) of the Act.

While we are not aware whether a retroactive payment of an attendant's allowance involves interest, it is our opinion that interest on retroactive worker's compensation awards calculated on payments from the date the recipient was entitled to receive the payment as a result of the award to the date the award is made, should not be included in the recipient's income. This is consistent with our position on prejudgement interest on damages for personal injury or death or wrongful dismissal. However, interest on such payments calculated from the date of the award to the date of actual payment should be included in the recipients income as interest pursuant to paragraph 12(1)(c) of the Act.

It is our view that the amount of a salary paid to an attendant would be subject to tax under subsection 5(1) of the Act in the year received.

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

cc: Source Deductions Division
Client Assistance Directorate
Assessment of Returns Directorate