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:
Whether retirement benefit under Workplace Safety and Insurance Act can be deducted under subparagraph 110(1)(f)(ii).
Position: No.
Reasons:
The retirement benefit paid out of the pension fund cannot be said to be compensation in respect of an injury, disability or death. Rather it would be considered to be a superannuation or pension benefit taxable under paragraph 56(1)(a)
980817
XXXXXXXXXX R. Brazeau-LeBlond, CA
(613) 957-2053
Attention: XXXXXXXXXX
July 30, 1998
Dear Sirs:
Re: Retirement benefits paid under the Workplace Safety and Insurance Act 1997 (WSIA)
This is in response to your letter of March 27, 1998, concerning subparagraph 110(1)(f)(ii) of the Income Tax Act (the “Act”).
Your letter explains that when an injured worker receives compensation for loss of earnings for twelve consecutive months, the Workplace Safety and Insurance Board (the “Board”) is required to set aside for the worker an amount equal to 5% of every subsequent payment made for loss of earnings. This contribution will not be deducted from the payment made for loss of earnings. In addition to the Board setting aside these amounts, the particular worker may irrevocably elect to make an equivalent contribution. The Board is required to maintain a fund into which these amounts shall be deposited. When a worker reaches age 65, the worker becomes entitled to receive a retirement benefit equal to the sum of the Board’s contribution, the worker’s contribution (if any) plus the accumulated investment income thereon.
You seek our interpretation concerning the deductibility of these retirement benefits under subparagraph 110(1)(f)(ii) of the Act. In particular, you would like to obtain confirmation of the following:
1. When a worker elects to make a contribution, only the net amount of the subsequent compensation payments made for loss of earnings (after deduction for the worker’s contribution) will be included under paragraph 56(1)(v) of the Act and deducted under subparagraph 110(1)(f)(ii) of the Act.
2. The accumulated income earned on the worker’s contribution will not be subject to income tax in the hands of the particular worker prior to that worker reaching the age of 65.
3. The entire lump sum payment, if any, of the accumulated amount available to a worker (including both the board’s and the worker’s contribution) will be included in income under paragraph 56(1)(v) of the Act and deducted under subparagraph 110(1)(f)(ii) of the Act.
4. The entire amount of all annuitized periodic payments (including both the board’s and the worker’s contribution) made by the insurance company as an agent of the Board after the worker’s retirement or death will be included in income under paragraph 56(1)(v) of the Act and deducted under subparagraph 110(1)(f)(ii) of the Act.
5. The Board, or its agent, will issue a form T5007 each year to a worker reflecting the amount of compensation for loss of earnings (less any worker’s contribution) and the amount of any retirement benefit.
6. The same result in 1 to 5 occurs where the retirement benefit is paid to the worker’s spouse, dependents or estate or where the worker dies following the commencement of the periodic payments of the retirement benefits.
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and which are based on the assumption that Schedule 2 employers do not contribute to the fund.
Compensation received under an employees’ or workers’ compensation law of Canada or a province in respect of an injury, a disability or death is included in income under paragraph 56(1)(v) of the Act. In certain cases, subparagraph 110(1)(f)(ii) of the Act provides a deduction 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.
Compensation in respect of an injury, disability or death paid to an employee under subsection 43(1) of the WSIA should be included in income under paragraph 56(1)(v) of the Act as worker's compensation and be deductible under subparagraph 110(1)(f)(ii) of the Act provided the requirements of that provision are met. However, a retirement benefit paid out of the pension fund under section 45 of the WSIA cannot be said to be compensation in respect of an injury, disability or death. Therefore, it would not be included in income under paragraph 56(1)(v) of the Act nor deductible under subparagraph 110(1)(f)(ii) of the Act. In our view, such retirement benefits would fall more specifically within the definition of "superannuation or pension benefit" as this term is defined in subsection 248(1) of the Act and, as a result, should be included in income under subparagraph 56(1)(a)(i) of the Act.
With respect to your specific questions, we can offer the following:
1. Whether or not a worker elects to make a contribution to the pension fund, the full amount of the compensation payments made for loss of earnings (before any deduction for the worker’s contribution to the pension fund) should continue to be included in the recipient’s income under paragraph 56(1)(v) of the Act.
2. We do not have sufficient information on the structure of the Fund in which the Board will deposit its, and the workers’, contributions to confirm whether the income earned on the worker’s contribution will not be subject to income tax in the hands of the particular worker until the worker reaches age 65. However, if the amount that the Board sets aside for a particular worker, under subsection 45(2) of the WSIA, combined with any contribution the worker may make, is held in trust for that worker, the accumulated income that the trust earns in a given year should normally be taxed in the trust.
3. A lump sum payment of the accumulated amount available to a worker (including both the board’s and the worker’s contribution) is not compensation in respect of an injury, disability or death and should not be included in income under paragraph 56(1)(v) of the Act nor deducted under subparagraph 110(1)(f)(ii) of the Act.
4. As with the lump-sum payment, the amount of any annuitized periodic payments (including both the board’s and the worker’s contribution) made by the insurance company as an agent of the Board after the worker’s retirement or death should not be included in income under paragraph 56(1)(v) of the Act nor deducted under subparagraph 110(1)(f)(ii) of the Act.
5. The Board, or its agent, would normally issue to a worker a form T5007 reflecting the full amount of compensation (before any deduction for the worker’s contribution to the pension fund) for loss of earnings the worker received in the particular year. However, form T5007 would not be the appropriate form to file in respect of a retirement benefit; a form T4A would be required.
6. The same result in 1 to 5 occurs whether the retirement benefit is paid to the worker, the worker’s spouse, dependents, or estate, or where the worker dies following the commencement of the periodic payments of the retirement benefits.
We trust that these comments will be of assistance.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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