23 December 2003 Internal T.I. 2003-0049497 - EMPLOYMENT INCOME CHEQUE WAS NOT REC'D

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: The impact of the deeming provision in subsection 248(7) of the Act on the taxation of employment income. The taxpayer was entitled under a contract of employment to an annual residual payment for employment services that were performed under the contract. The employer mailed cheques to the taxpayer for the payments for a period of XXXXXXXXXX years. The taxpayer did not receive these cheques and later received a lump-sum amount from the employer in lieu of the cheques not received.

Position: Subsection 248(7) is not applicable in this situation. Subsection 5(1) of the Act applies to include the lump-sum payment in employment income in the taxation year in which it was received.

Reasons: In terms of determining a taxpayer's employment income under subsection 5(1) of the Act, paragraph 248(7)(a) would apply to include therein an amount that has been mailed in the taxation year but not received until the following taxation year. However, paragraph 248(7) of the Act would not apply to include an amount in a taxpayer's employment income where the facts clearly show that the taxpayer, or someone else for the taxpayer's benefit, never received the amount. In this situation, the taxpayer did not actually receive the cheques, nor did someone else receive them for the taxpayer's benefit.

		December 23, 2003

	XXXXXXXXXX 	HEADQUARTERS
	Individual Programs Section 	Randy Hewlett, B.Comm.
	Client Services Division	613-957-8973
	XXXXXXXXXX  Tax Services Office

		2003-004949

The Taxation Of Employment Income - Payment By Cheque Was Not Received

We are writing in response to your e-mail of November 19, 2003, wherein you requested our view on the above-noted issue. We also acknowledge the additional information submitted in your e-mails of December 17 and 19, 2003.

In your e-mails, you indicated that you received an inquiry from a taxpayer (the "Taxpayer") who, under a contract of employment with a XXXXXXXXXX company based in XXXXXXXXXX (the "Employer"), was entitled to an annual residual payment of $XXXXXXXXXX for employment services that were performed under the contract. For XXXXXXXXXX years, from XXXXXXXXXX to XXXXXXXXXX, the Employer mailed a cheque to the Taxpayer for the annual residual payment. The Taxpayer did not receive the cheques XXXXXXXXXX. In XXXXXXXXXX the Taxpayer XXXXXXXXXX notified the Employer. The Taxpayer recently received a cheque from the Employer for $XXXXXXXXXX in lieu of the cheques for the annual residual payment that she did not receive from XXXXXXXXXX to XXXXXXXXXX. The Taxpayer did not include the annual residual payment in her employment income for the taxation years XXXXXXXXXX to XXXXXXXXXX.

In your view, the total $XXXXXXXXXX amount should be included in the Taxpayer's employment income in the XXXXXXXXXX taxation year pursuant to subsection 5(1) of the Income Tax Act (the "Act"), since this is the taxation year in which the Taxpayer actually received the amount. The Taxpayer wants to include $XXXXXXXXXX in her employment income for each of the taxation years XXXXXXXXXX to XXXXXXXXXX. You are concerned that subsection 248(7) of the Act may support the Taxpayer and because the XXXXXXXXXX to XXXXXXXXXX taxation years are now statue-barred, $XXXXXXXXXX may escape taxation.

Our Comments

Subsection 248(7) of the Act was enacted mainly to legislate the CCRA's administrative practice with respect to the date of filing of tax returns and elections that are sent by mail. It also applies for purposes of determining the date of receipt of amounts sent by mail. In this regard, paragraph 248(7)(a) of the Act deems anything sent by first class mail or its equivalent to have been received by the person to whom it was sent on the day it was mailed. Subsection 5(1) of the Act includes in a taxpayer's income from an office or employment for a taxation year, "the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year."

In terms of determining a taxpayer's employment income under subsection 5(1) of the Act, we are of the view that paragraph 248(7)(a) would apply to include therein an amount that has been mailed in the taxation year but not received until the following taxation year. It is also our view, however, that paragraph 248(7)(a) of the Act would not apply to include an amount in a taxpayer's employment income where the facts clearly show that the taxpayer, or someone else for the taxpayer's benefit, never received the amount. We are of the view that paragraph 248(7)(a) of the Act is not applicable in the situation described above because the Taxpayer (or someone else for the Taxpayer's benefit) never received the annual residual cheque payments. In our view, the total $XXXXXXXXXX amount must be included in the Taxpayer's employment income in XXXXXXXXXX pursuant to subsection 5(1) of the Act.

We trust our comments are of assistance. For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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