27 July 1993 Ministerial Letter 9321408 F - Northern Cod Adjustment and Recovery Program

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.

ISSUE SHEET

PAYMENTS MADE UNDER THE NORTHERN COD ADJUSTMENT AND RECOVERY PROGRAM

Issue

Employed workers receiving benefits under the Northern Cod Adjustment and Recovery Program (NCARP) may complain that they are not being treated the same as self-employed fisherperson workers receiving such benefits, especially with respect to the $500 working income supplement under the Child Tax Benefit program. Business income is "earned income" for RRSP, Child Tax Benefit, Child Care Expense and CPP purposes but other income received under NCARP is not. Questions may also arise concerning payment for vessel support under NCARP.

Response

NCARP PROVIDES BENEFITS TO NORTHERN COD FISHERPERSONS, TRAWLERMEN, AND PLANT WORKERS DURING THE BAN ON NORTHERN COD FISHING. INCOME BENEFITS ARE DETERMINED PARTLY ON A RECIPIENTS AVERAGE UNEMPLOYMENT INSURANCE BENEFITS OVER THE PAST 3 YEARS. VESSEL SUPPORT PAYMENTS ARE DESIGNED TO HELP DEFRAY COSTS OF REPAIR AND MAINTENANCE OF THE VESSEL AND EQUIPMENT, VESSEL STORAGE, VESSEL BERTHAGE, INSURANCE PREMIUMS AND GEAR STORAGE.

PROPOSED CHANGES TO THE INCOME TAX ACT WILL REQUIRE INCOME BENEFITS UNDER NCARP TO BE INCLUDED IN INCOME UNDER — 56 OF THE ACT UNLESS OTHERWISE REQUIRED TO BE INCLUDED IN INCOME. SELF-EMPLOYED FISHERPERSONS, FOR INSTANCE, WILL INCLUDE SUCH PAYMENTS IN INCOME AS BUSINESS INCOME. BUSINESS INCOME IS CONSIDERED EARNED INCOME UNDER THE ACT WHEREAS BENEFITS OF THIS NATURE RECEIVED BY EMPLOYEES IS NOT. IT IS A QUESTION OF FACT WHETHER AIDUAL WORKING IN THE FISHINTRY IS AN EMPLOYEE OR A SELF-EMPLOYED BUSINESS PERSON.

AMOUNTS RECEIVED UNDER THE VESSEL SUPPORT PROGRAM ARE CONSIDERED INCOME FROM A BUSINESS OR PROPERTY AND SHOULD BE INCLUDED IN INCOME TO THE EXTENT THAT THEY HAVE NOT BEEN DEDUCTED IN COMPUTING FOR THE YEAR THE EXPENSES WHICH THEY ARE INTENDED TO DEFRAY. THERE SHOULD BE NO DIRECT TAX CONSEQUENCES TO A FISHERPERSON TO THE EXTENT THAT THE GRANTS DO NOT EXCEED ACTUAL EXPENSES.

Background

NCARP benefits are treated differently depending whether the recipient is a self-employed fisherperson who would report the benefits as business income or a plantworker who will have to report such payments as benefits under section 56 of the Act. NCARP benefits received by plant workers are taxable and are not considered earned income for the $500 working income supplement under the Child Tax Benefit. NCARP benefits reported by self-employed fisherperson, on the other hand, are considered earned income for the annual $500 working income supplement. The reason for the difference is that Government benefits are not earned income for tax purposes. Unlike work (employment) income, such benefits do not require individuals to incur incidental expenses, such as daily bus fare. As well, those receiving benefits do not have to commit large amounts of time that could be used for other activities such as parenting. In addition, when these workers were employed they received a wage for their work without having to make an investment. When unemployed, they no longer have any work related financial or time obligations.

However, the benefits are considered to be earned income for self- employed fisherpersons. This group often has substantial investment and operating costs for their boat and gear. When unemployed, these individuals are left with sizable investments, depreciation on the investments, and maintenance-related costs. Since self-employed workers remain tied to the industry and incur earnings-related expenses while receiving their compensation, their payments are considered to be earnings-related.

The tax treatment of the benefits received by self-employed fisherpersons also ensures that they are treated similarly to self- employed farmers who receive government assistance.

For Further Information: Approved by ADM