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:
Taxation of payments made by HRDC under the Fisheries Restructuring and Adjustments program a) early retirement program b) license retirement program c) economic development measures d) adjustment measures e) term job creation
Position:
All payments (except item c) are taxable whether recipient is self employed or employed.
Reasons:
a) Self- employed individuals, considered to be earning income from business, in receipt of these lump sum payments would be required to include such amounts in income by virtue of section 9 and/or 28 of the Income Tax Act (the “Act”). Lump sum cash payments received by individuals other than self-employed individuals, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
b) The proceeds from the license buy-backs will be treated as the proceeds from the disposition of eligible capital property.
c) Payments are not made to individuals therefore the taxation was not discussed.
d) Taxable as other income under paragraph 56(1)(r) of the Act.
e) Taxable of other income under subparagraph 56(1)(a)(vi) of the Act.
TO BE FAXED - 954-4956
Gabriel C. de Sousa
Policy Interpretation Officer
Income Security Programs 5-982227
Human Resources Development Canada Karen Power, CA
September 21, 1998
Dear Mr. de Sousa:
Re: Fishery Restructuring and Adjustment (the “FRA”) Measures
We are writing in reply to your correspondence of August 28, 1998, wherein you requested our views on the taxation of early retirement payments made under the new FRA program. We have also received your correspondence of September 16, 1998, requesting our views on the taxation of other payments available to individuals provided under the FRA program.
The payments are described as follows:
Early Retirement Program
- This is a voluntary program to provide fishers and fishplant workers with regular monthly payments until they reach the age of 65.
- All those eligible for The Atlantic Groundfish Strategy (“TAGS”) program as of January 1, 1998, and who are aged 55 to 64 on December 31, 1998, will be eligible for early retirement benefits.
- Early retirement will also be available to those clients who were not eligible on January 1, 1998, but who can demonstrate that their eligibility would have continued, except for special circumstances, such as illness, injury, pregnancy.
License Retirement Program
- This is a voluntary program to retire groundfish licenses in the Atlantic provinces and Quebec.
- It will be similar to license retirement programs provided under TAGS.
- Fishers will be required to give up their groundfish licenses and personal fishing registration and dispose of other licenses. The total amount of the Final Cash Payment will be deducted from the license retirement amount individuals will receive.
Economic Development Measures
- The Atlantic Canada Opportunities Agency and Canada Economic Development will take primary federal responsibility for this program.
- The monies available under this component will assist communities to diversify their economies and help to create new jobs as an alternative to the fishery.
- This initiative will have goals such as: improving the investment climate for the private sector, investing in competitiveness and innovation by assisting small and medium-sized businesses and supporting strategic initiatives.
Adjustment Measures
- The adjustment measures are available to all current and formerly eligible TAGS clients.
- TAGS clients who qualify for EI Part II programming, either as current or former claimants, can assess programs such as: self-employment, job creation partnerships, targeted wage subsidies and skills, loans and grants including enhanced feepayers.
- A number of similar measures will be available to all former TAGS clients who are not eligible for EI Part II regular employment programming including term job creation and mobility assistance.
Term Job Creation
- This measure will help unemployed individuals get work through work experience and labour market development activities that are linked with local economic development plans.
- All current and former TAGS clients not eligible for EI Part II measures and all unemployed individuals in affected communities are eligible. Priority will be given to current and former TAGS clients.
The taxation of the lump sum cash payments and the mobility payments available under the FRA program have been discussed in an earlier letter to Human Resources Development Canada (“HRDC”) (file # 5-982005).
Early Retirement Payments
It is our understanding that the early retirement element of the FRA program is delivered by HRDC and the authority relied upon for it is section 5 of the Department of Human Resources Development Act and section 5 of the Department of Fisheries and Oceans Act.
In our view, the early retirement payments, received by self-employed individuals, considered to be earning income from business, would be required to be included in the computation of business income by virtue of section 9 and/or 28 of the Income Tax Act (the “Act”).
Section 56 of the Act requires that certain amounts be included in computing the income of a taxpayer for a taxation year. Specifically, subparagraph 56(1)(a)(vi) states:
“except to the extent otherwise required to be included in computing the taxpayer’s income, a prescribed payment...”.
Paragraph 5502 of the Income Tax Regulations (the “Regulations”) defines the meaning of a prescribed payment for purposes of subparagraph 56(1)(a)(vi). Subparagraph 5502(c) includes benefits under programs to provide income assistance payments, administered pursuant to agreements under section 5 of the Department of Fisheries and Oceans Act.
In our view, the early retirement payments received by individuals other than self-employed individuals, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
License Retirement Program
In our view, the proceeds from the license buy-backs will be treated as the proceeds from the disposition of eligible capital property. This treatment is consistent with license retirement programs delivered under the Northern Cod Adjustment and recovery Program (“NCARP”) and TAGS.
Economic Development Measures
Based on our understanding of the Economic Development Measures, no payments under this element of the FRA program will be made to individuals, and we have therefore not provided any comments on the taxation of these payments.
Adjustment Measures
In our view, payments under this measures would be considered payments under EI Part II programming and would be taxable as other income under paragraph 56(1)(r) of the Act. This paragraph was included in Bill C-28, which received Royal Assent on June 18th, 1998. This amendment is retroactive to June 30, 1996, the date of coming into force of the EI Act and Revenue Canada will apply the amendment beginning with the 1997 tax year.
Paragraph 56(1)(r) of the Act subjects to tax various training-related amounts. Specifically, this paragraph includes in a taxpayer’s income financial assistance received under Part II of the Employment Insurance Act, as well as similar financial assistance received from a government or government agency under the terms of an agreement with the Canada Employment Insurance Commission.
Term Job Creation
In our view, all payments made under this measure received by individuals, whether employees or self-employed individuals, would be considered other income by virtue of subparagraph 56(1)(a)(vi) of the Act.
We trust our comments will be of assistance to you.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
cc Shirley Steele, HRDC
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