12 January 1990 Income Tax Severed Letter AC745667 - Disabled Persons Minimum Wage Protection Act

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.

JAN 12 1990

Provincial and International                   Business and
                                                 General
Relations Division                               Division
C. Savage                                      J.A. Szeszycki
A/Director                                     957-2103

B. Fioravanti

Disabled Persons' Minimum
Wage Protection Act                            7-4566

We are responding to your memorandum of December 4, 1989, in which you requested our views as to the tax treatment of certain payments to be made under the proposed Disabled Persons Minimum Wage Protection Act, 1989 ("Wage Policy"). Your request follows a meeting held on November 30, 1989, at which Jack Szeszycki of this Division attended, between representatives of Revenue Canada, Taxation, National Health and Welfare and the

Background

                                  24(1)
Generally, individuals that will be entitled Co assistance under
the Wage Policy are already receiving some level of social
assistance in connection with their disability.  Those that are
not receiving social assistance benefits are those individuals
with disabilities who, for one reason or another, do not meet the
means, needs or income criteria for entitlement.  It is also our
understanding that in the sheltered workshop environment the
majority of disabled persons are performing activities that are
not considered  to be in the nature of work for the purposes of
determining whether an employer/employee relationship exists.  
Their activities can be characterized more as therapy or
training.  These individual.s are not entitled to benefits under
the Wage Policy.  There are some individuals in sheltered
workshops, however, who are unable to cope with the competitive
work environment but who nevertheless perform employment
activities.  This latter group will be subject to the proposed
Wage Policy.

                             24(1)

The tax treatment accorded the first two components are not at issue. The payment from the employer is employment income under section 5 of the Act and social assistance payments are treated under paragraph 56(l)(u) and subparagraph ll0(l)(f)(iii). The task at hand is to determine the nature of the supplementary payment and its appropriate tax treatment.

Our Comments

In our view, there are but two alternative characterizations of the supplementary payment; 1) as employment income or 2) as an additional social assistance payment.

In order for a payment to be characterized as a social assistance payment the individual in respect of whom the payment is made must' meet the means, needs or income criteria. As noted in the submission and illustrated in the examples provided, those who meet the social assistance criteria and thereby receive some level of assistance viii, in all likelihood, receive a combined wage and social assistance that viii exceed the MinE. Those whose social assistance is reduced (due to the level of wages earned) may require a small supplementary payment.

Those who viii receive the largest amounts of supplementary payments under the Wage Policy are those who upon application of the means, needs or income test, were found not to be entitled to social assistance. We would, therefore, find it difficult to view' the supplementary payment as a form of social assistance, subject to treatment under' paragraph 56(l) (in) and subparagraph ll0(l)(f)(iii) of the Act, when its largest recipients are those individuals not qualifying for social assistance.

We conclude, therefore, that the Supplementary payment is additional income from employment in the form of a top-up payment made primarily in order to satisfy provincial minimum wage requirements.

Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch

cc. L.P. Mancino, Source Deductions Division