18 September 1989 Income Tax Severed Letter ACC8658 - Remission Request

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.

September 18, 1989

Remission Committee                Technical Interpretations
Mr. A.G. Cockell                     Division
Chairman                           F.B. Fontaine
                                   957-9228

REMISSION REQUEST 19(1)19(1) (the "taxpayer") wrote to our Minister requesting administrative relief under the Financial Administration Act and indicating that he had reported non-taxable age loss replacement plan benefits (the "benefits") for the 1976 to 1987 taxation years.

19(1)                             He quoted  IT-428
 dated April
30, 1979 which discusses  that in accordance with ITAR 19, wage
loss replacement plan benefits would not be taxable if they were
attributable to an event occurring before 1974 and the particular
plan was established before June 19, 1971.

Letters on file from the taxpayer's physician and 19(1) (the taxpayer's previous employer), confirm respectively, that the event leading to the taxpayer's disability started in 1973 and that the Plan came into force March 1, 1971.

According to extracts from the Plan the benefit is equal to 66 2/3 of the taxpayer's salary less any CPP disability benefits which the taxpayer also receives. The Plan provides that the benefits would be subject to tax if the event leading to the disability occurred after December 31, 1973. The insurer withheld no tax at source from the payments.

21(1)(b)

The taxpayer's average annual total earnings for the years 1977 to 1983, including the benefits, is 19(1) However, exclusion from income of the benefits will result in an overall decrease in federal taxes of 19(1) for which the taxpayer seeks remission.

Given the taxpayer's level of gross earnings, extreme hardship is not present in the circumstances.

Although Assessing's memorandum states that the taxpayer have been incorrectly advised by the Department, no written evidence was submitted to support the taxpayer' s allegation of incorrect advice. However, 19(1) claims that he disputed the taxability of the payments on the grounds that they were akin to workers' compensation payments. Following his alleged discussions with the District Office on the subject he commenced to make instalment payments as he understood he was obliged to do because of the absence of deductions at source. Instalment payments have been made in all returns still available (1983 is the earliest).

It appears that the insurer    24(1)     knew that the payments
were not taxable because Regulation 102(1) requires withholding
at source in respect of "salary or wages" which includes income
under paragraph 6(1)(f).  Reporting of all periodic payments
under an "income maintenance insurance plan" is nevertheless
required under Regulation 200(2)(f)(iii).  As a minimum, a person
knowledgeable in tax matters should have queried the insurer on
the taxability or the absence of source deductions.  Not being
knowledgeable in tax matters and possibly being more concerned
with his serious health problems at that time    19(1)   appeared
to equate receipt of the T4A slip with taxability.  This is not
an unexpected conclusion for an unsophisticated taxpayer such as  
 19(1)  .  Accordingly, on the basis of a significant financial
setback and naivety in the face of complications extraordinary to
those normally encountered by a pensioner, we recommend that the
tax overpayments be refunded by way of remission.

19(1)19(1)

As in the case of the taxpayer there is no evidence of extreme hardship or departmental error with regard to the spouse. However, it is our view that there is some financial setback together with conditions beyond the spouse's control that prevented her from claiming the taxpayer's unused deductions. The amount of federal tax subject to remission as calculated by the Assessing Directorate is 19(1) refers to the 1978 to 1984 taxation years. This figure includes the married exemption allowed to the spouse for those years except 1979. We recommend that the overpayment of tax be refunded to the spouse.

R.E. Thompson Chief, Technical Review Section Technical Interpretations Division Legislative & Intergovernmental Affairs Branch