6 February 1998 Internal T.I. 9729937 - INTEREST ON RETRO REINSTATED WCB BENEFITS-CHARTER

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.

Principal Issues:

tax treatment of interest for retroactive reinstatement of WCB survivor benefits arising from a Charter challenge to ss 19(2) of the Workers Compensation Act of B.C.

Position:

taxable under 12(1)(c) as interest with no offset under 110(1)(f)

Reasons:

this interest, which is required by statute, cannot be considered to be prejudgment interest awarded in respect of damages for personal injury or death as the original entitlement to damages arising from death was established before the period for which interest is payable

February 6, 1998

	Southern Interior (B.C.) 						    Tax Services Office 	HEADQUARTERS
	Communications Division	      A. Humenuk
	Attention: Jim Solley
	                             	972993

Interest payable under paragraph 19(2)(c)
of the Workers Compensation Act of British Columbia

This is in response to your memorandum of November 7, 1997, concerning the payment of interest under paragraph 19(2)(c) of the Workers Compensation Act of British Columbia ("WCABC") to the widows of deceased workers. Survivor benefits payable under the WCABC that had previously been terminated when a widow remarried or commenced a common-law relationship prior to April 17, 1985 were reinstated as a result of the decision of the Supreme Court of British Columbia in the case of Grigg v. The Queen.

In 1993/1994, the WCABC was amended to remove marriage and the commencement of a common-law relationship as events which terminate a widow or widower's entitlement to survivor benefits previously payable under the WCABC. These amendments restored benefits for widows and widowers who had remarried or commenced a common-law relationship since April 17, 1985. Subsection 19(2) of the WCABC provides for a lump sum payment, representing the payments which would have been made during the period from April 17, 1985 to the date that benefits were reinstated, plus interest.

The issue in the Grigg case was whether the 1993/1994 amendment discriminated against Marlene Grigg in particular, and against widows who remarried prior to April 17, 1985 generally, by reason of their marital status. Restoration of benefits to widowers was not an issue since widowers did not become entitled to survivor benefits under the WCABC until 1985. The Supreme Court of British Columbia found that section 15 of the Canadian Charter of Rights and Freedoms (Charter), Part I of the Constitution Act, 1982 had been breached by reason of the 1993/1994 amendments. As a result of this decision, the Workers Compensation Board of British Columbia proceeded to reinstate benefits as of April 17, 1985 for all widows who remarried or commenced a common-law relationship prior to April 17, 1985.

XXXXXXXXXX has asked whether a deduction under paragraph 110(1)(f) of the Income Tax Act (the "Act") is available in respect of any of the payments described in subsection 19(2) of the WCABC that are made as a result of the Grigg decision.

Subparagraph 110(1)(f)(ii) of the Act provides a deduction to individuals other than an employer or former employer in respect of compensation received for injury, disability or death under a workers' compensation law of Canada or a province, to the extent that such compensation is included in the individual's income for that year. Since both the lump sum payment for benefits lost during the period of non-entitlement, as well as the reinstated monthly survivor benefits represent compensation to the widow for the death of her spouse, it is our view that a deduction under paragraph 110(1)(f) of the Act is available in respect of such payments. However, the interest payable under paragraph 19(2)(c) of the WCABC is properly considered to be interest and is taxable under paragraph 12(1)(c) of the Act. No deduction would be available under paragraph 110(1)(f) of the Act in respect of such interest.

As you are aware, our position with respect to the exclusion from income of certain prejudgment interest, including interest payable from the date of an injury, disability or death to the date eligibility is first established by a workers' compensation board decision is currently under review. In this case, since the effect of the Grigg decision was to restore benefits to certain widows, entitlement to workers' compensation as a result of death was presumably established prior to the period for which interest is payable under paragraph 19(2)(c) of the WCABC. Therefore, this interest cannot be considered to be prejudgment interest awarded in respect of damages for personal injury or death and is accordingly taxable under paragraph 12(1)(c) of the Act.

C. Chouinard
Section Chief
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

cc Ken Kerr, Program Advisor,
Pacific Region