18 May 2006 External T.I. 2005-0160301E5 - 6(1)(f) - Wage Loss Replacement Plan

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.) Tax implications to an employee of benefits received under a wage loss replacement plan that is co-paid by an employer.

2.) Whether any part of an employee's contribution or benefit can be deducted where such a benefit is taxable, and if so, on what line of the individual's tax return may such a deduction be claimed.

3.) Whether the employer or insurer is responsible for providing contribution documentation used to determine available deductions to employees.

Position: 1.) Subparagraph 6(1)(a)(i) of the Act excludes from an employee's income the value of benefits derived from the contributions of an employer to a wage loss replacement plan. However, paragraph 6(1)(f) includes in employment income any benefits paid to an employee from a plan where the employer pays all or part of the premiums for the plan.

2.) The amount of the benefit included in income is reduced by the amount of contributions made by the employee provided for by subparagraph 6(1)(f)(v). The amount of taxable benefits received under a wage loss replacement plan that may be offset by employee contributions to the plan is not a deduction, but a reduction to the total amount of taxable benefits received. The responsibility for determining and substantiating the employee contributions that can be offset against the benefits rests with the taxpayer making the claim and reporting the amount on line 104 of the individual's tax return.

3.) The responsibility of providing documentation related to the contributions to or benefits received by the employee under such a plan can only be established though review of the terms of the contract between the employer and insurer for the provision of benefits and the plan documents, and is a question of fact.

								2005-016030
XXXXXXXXXX 							Darlene Green
(613) 957-2082
May 18, 2006

Dear XXXXXXXXXX

Re: Paragraph 6(1)(f) - Wage Loss Replacement Plans

This is in response to your email correspondence of November 23, 2005 wherein you inquired about the tax implications to an employee in respect of benefits received under a wage loss replacement plan that is co-paid by an employer. You asked if any part of the employee's contribution to the plan could be deducted where such a benefit is taxable, and if so, on what line of the individual's tax return may such a deduction be claimed. Finally, you asked whether the employer or insurer is responsible for providing contribution documentation used to determine the deductions available.

Subparagraph 6(1)(a)(i) of the Income Tax Act, (the "Act") excludes from an employee's income the value of benefits derived from the contributions of an employer to certain employer-sponsored arrangements including, among others, group sickness or accident insurance plans, commonly referred to a wage loss replacement plans. However, paragraph 6(1)(f) of the Act applies to include in employment income any benefits paid to an employee from a wage loss replacement plan where the employer pays all or part of the premiums for the plan. The amount of the benefit included in income is reduced by the amount of contributions made by the employee pursuant to subparagraph 6(1)(f)(v) of the Act.

The reporting requirements are explained in guides RC 4157 - Deducting Income Tax on Pension and Other Income, and Filing the T4A Slip and Summary Form¸ and the T1 General Income Tax and Benefit Guide, Line 104 - Other Employment Income. The gross amount of the benefit received under a wage loss replacement plan is to be reported in box 28 of a T4A slip. The employee reports on line 104 the gross amount of the benefit less contributions to that plan not already deducted from taxable benefits previously received under the plan.

We trust that our comments will be of assistance to you.

Yours truly,

Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch