25 July 2011 External T.I. 2011-0401781E5 - Lump sum settlement of union member grievances

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.

Principal Issues: 1. Whether a company or an employees' union should distribute a lump sum settlement payment in resolution of outstanding union grievances to individual union members? 2. Which entity should submit appropriate withholding taxes and T4s?

Position: 1.Either entity. 2. The entity making the payments to individual union members.

Reasons: 1. There are no specific rules under the ITA that govern which entity, employer or union, must distribute to employees a negotiated lump sum settlement amount in resolution of outstanding union member grievances. Regardless of who pays, under subsection 5(1) of the ITA the amounts are generally considered income from an office or employment. 2. Under subsection 153(1) of the ITA, withholding taxes are deducted and submitted by the entity making the payments to individual recipients.

XXXXXXXXXX 					2011-040178
						M. Allan

July 25, 2011

Dear XXXXXXXXXX :

Re: Lump sum union grievance settlement payment

I am writing in response to your e-mail of April 6, 2011, in which you enquired whether a company or an employees' union should distribute a lump sum settlement payment in resolution of outstanding union grievances to individual union members, and which party should submit appropriate withholding taxes and issue T4 forms.

In the situation you described, a company and union have concluded proceedings to create a new collective bargaining agreement. One item agreed upon is that a lump sum amount will be paid by the company to the union to settle all outstanding grievances and current matters scheduled for arbitration. The lump sum payment will be distributed to the individual union members in amounts as determined by the union.

Our Comments

Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.

There are no specific rules under the Income Tax Act ("ITA") which govern which entity, employer or union, must distribute to employees a negotiated lump sum settlement amount in resolution of outstanding union member grievances. The settlement amounts are, however, regardless of who makes payment, generally considered to be income from an office or employment, i.e. "salary, wages and other remuneration" under subsection 5(1) of the ITA.

Subsection 153(1) of the ITA requires that every "person" paying salary, wages and other remuneration to withhold and submit the appropriate withholding taxes (source deductions) from such amounts. As well, the payer is required under the Income Tax Regulations to issue the related forms, such as T4s. A "person" is defined under subsection 248(1) of the ITA to include a corporation, and an entity exempt from income tax such as a union as described under paragraph 149(1)(k) of the ITA.

Therefore, where a union distributes a settlement amount to the individual union members, it is considered a "person" required to withhold and submit all appropriate taxes and issue the related T4s. If the company distributes the settlement amount directly to individual union members, then the company would be required to do so.

We trust these comments will be of assistance.

Phyllis Waugh
A/Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch