17 July 1995 External T.I. 9517775 - WORKER'S COMPENSATION BENEFITS

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.

	  	                                  951777
XXXXXXXXXX	                                   J.A. Szeszycki
(613) 957-8953
July 17, 1995

Dear XXXXXXXXXX:

Re: Worker's Compensation Benefits

This is in reply to a request from XXXXXXXXXX to provide you with a further explanation of the tax treatment given to worker's compensation benefits under the Income Tax Act.

Throughout its history, the Income Tax Act (and its predecessor, the Income War Tax Act) has reflected the Government's policy not to tax worker's compensation payments. Prior to 1982, worker's compensation benefits were included among those income payments that were considered tax exempt and thereby not required to be reported on the income tax return in any form. The same was true of social assistance payments.

Effective for the 1982 and later taxation years, the Income Tax Act was amended in such a way as to recognize the existence of the payments by requiring that they be included in the computation of net income on the return but then be deducted from that net income so that it would not be reflected in the taxable income figure upon which the individual's income tax is based. Prior to 1982, it was found that since the receipt of worker's compensation or social assistance payments were not included in computing the recipient's net income, such income was not recognized in determining whether the recipient was dependant upon a spouse or other relative for support. A claim for personal exemptions (now personal credits) in respect of a spouse or other dependant is affected by that individual's level of income. If an individual is in receipt of sufficient income, whether that income is subject to tax or not, that individual should not be claimed as a dependant.

Consequently, an individual's receipt of worker's compensation benefits or social assistance payments is taken into account in computing the personal tax credit claim of a related taxpayer who would otherwise be entitled to claim the benefit recipient as a dependant. It is our understanding that other government assistance programs such as unemployment insurance and social assistance similarly take into account the individual's receipt of non-taxable worker's compensation benefits.

For more specific information on the rules for computing your unemployment insurance benefit entitlement we would suggest that you contact your local office of Human Resources Development Canada which has jurisdiction in these matters.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch