23 January 2012 External T.I. 2011-0404951E5 - Reporting of Long/Short Term Disability Benefits

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: The appropriate reporting of long and short term disability benefits

Position: Depends on whether the amount is a periodic payment pursuant to a disability insurance plan, salary or wages, or retiring allowance.

Reasons: The law.

XXXXXXXXXX 						2011-040495
							N. Pulandiran

January 23, 2012

Dear XXXXXXXXXX :

Re: Reporting of Long-Term and Short-Term Disability Benefits

We are writing in response to your facsimile received on April 28, 2011, concerning the appropriate reporting of long-term disability ("LTD") and short-term disability ("STD") benefits.

Paragraph 6(1)(f) of the Income Tax Act ("Act") provides that amounts received on a periodic basis by an employee or an ex-employee as compensation for loss of income from an office or employment, that were payable under a sickness, accident, disability or income maintenance insurance plan ("wage loss replacement plans") to which the employer made a contribution, are to be included in income, but subject to a reduction as specified in that paragraph for contributions made by the employee to the plan.

Generally, where an employer pays employment income or taxable allowances and benefits or other remuneration, including retiring allowances, to its employees, such payments should be reported on a T4 slip, Statement of Remuneration Paid.

However, where a LTD or a STD payment is made under a wage loss replacement plan ("WLRP") and it is required to be included in the employee's income under paragraph 6(1)(f) of the Act, subparagraph 200(2)(f) of the Income Tax Regulations requires those payments to be reported on a T4A slip, Statement of Pension, Retirement, Annuity, and Other Income. Where the LTD or STD payment is not made under a WLRP, such payments should be reported on a T4 slip as employment income.

Paragraph 6 of Interpretation Bulletin IT-428, Wage loss replacement plans, dated April 30, 1979, states that a WLRP will be considered to exist where payments under the plan are to commence only when sick leave credits are exhausted. Further, according to paragraph 7 thereof, paragraph 6(1)(f) of the Act does not apply to uninsured employee benefits such as continuing wage or salary payments based on sick leave entitlement, which payments should be included in income under paragraph 6(1)(a) of the Act. Therefore, a STD or LTD payment made through the use of sick leave credits would not be considered a payment made under a WLRP, but would be an employment benefit under paragraph 6(1)(a) or deemed remuneration under subsection 6(3) of the Act and should be reported on a T4 slip.

A payment in recognition of long service or in respect of loss of an office or employment relating to unused sick leave credits qualifies as a retiring allowance for the purposes of the Act when the payment is made on termination of employment. This position is expressed in paragraph 3 of Interpretation Bulletin IT-337R4, Retiring Allowances (Consolidated), dated February 1, 2006. Paragraph 60(j.1) of the Act provides for a deduction for all or part of a retiring allowance included in a taxpayer's income and transferred to a registered pension plan ("RPP") or to a registered retirement savings plan ("RRSP") under which the taxpayer is the annuitant. An employer does not have to deduct income tax on the amount of the eligible retiring allowance that is transferred directly to an employee's RRSP or to an RPP on behalf of the employee; however the amounts must be reported on a T4 or T4A slip. As of 2011 (for the 2010 and subsequent tax years) retiring allowances are reported on the T4 slip instead of the T4A slip.

We trust our comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson
Manager
for Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch