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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether payments made to disabled worker by former employer who is not covered by workers' compensation legislation can be taxed under paragraph 56(1)(v).
Position: Paragraph 56(1)(v) does not apply.
Reasons: The amounts were not paid under a workers compensation law of a province or Canada.
March 20, 2001
Ms. Lorraine Tremblay HEADQUARTERS
Director General Wayne Antle
Income Tax Appeals Directorate (613) 957-2102
Appeals Branch
Attention: John Parker, CMA
2001-007406
XXXXXXXXXX
This is in response to your memorandum dated March 9, 2001, concerning whether payments made to XXXXXXXXXX under his former employer's unfunded disability plan can be included in his income under paragraph 56(1)(v) of the Income Tax Act (the "Act") and the corresponding deduction claimed under paragraph 110(1)(f) of the Act.
FACTS
XXXXXXXXXX was an employee of XXXXXXXXXX ("XXXXXXXXXX" or "the company") when he was injured during an employer-sponsored social function in XXXXXXXXXX. As a result of this injury, he became a quadriplegic. He returned to his job, but was forced to discontinue work in XXXXXXXXXX, when he developed carpal tunnel syndrome and repetitive stress injury. From XXXXXXXXXX paid XXXXXXXXXX out of its Sickness and Accident Plan, which was essentially fully paid sick leave granted to employees on short-term disability. In XXXXXXXXXX placed XXXXXXXXXX on its long-term Medical Disability Insurance ("MDI") plan, which is an unfunded contingency plan financed through the company's operating funds. XXXXXXXXXX is not covered by the Ontario workers' compensation legislation, and no workers' compensation amounts were received by the company in respect of XXXXXXXXXX injury.
ISSUE
The issue involves whether the payments received by XXXXXXXXXX can be considered "compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury" and therefore included in income under paragraph 56(1)(v) of the Act. If the payments are taxed under this provision, XXXXXXXXXX would be entitled to a corresponding deduction under subparagraph 110(1)(f)(ii) of the Act.
We previously considered XXXXXXXXXX situation and issued a letter on June 26, 2000 (File No. 2000-0021205). We indicated that the payments were not included in income under paragraph 56(1)(v) of the Act. Based on the limited information given to us, we provided general comments stating that the payments were likely taxable as wage loss replacement plan benefits under paragraph 6(1)(f) of the Act.
You have asked us whether the payments received by XXXXXXXXXX could fall within the ambit of paragraph 56(1)(v) of the Act.
XXXXXXXXXX
ANALYSIS
The Law
Paragraph 56(1)(v) of the Act includes in income "compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death". As noted above, XXXXXXXXXX was not covered by the Ontario workers' compensation legislation, nor did it receive any workers' compensation payments in respect of XXXXXXXXXX injury. In fact, XXXXXXXXXX case has never been reviewed by a workers' compensation board, tribunal, or similar body, to determine to what extent his injuries were related to his job, and to set a compensation rate. We are not aware of any other legislation pertaining to compensation for injured workers (e.g. Canada Labour Code) that would apply to the benefits received by XXXXXXXXXX. Clearly, the benefits cannot be considered as compensation paid under a workers' compensation law of a province or Canada.
IT 202R2
This bulletin must be read in its entirety, and each paragraph must be taken in context to understand its meaning. Paragraph 1 defines the term compensation (for the purposes of the bulletin) as "the amount of an award, as adjudicated by a compensation board, which a worker or his or her dependants will receive as a result of the worker having suffered illness, injury or death in the performance of his or her duties of employment and includes any such compensation to which entitlement is provided under the Government Employees Compensation Act or any employees'or workers' compensation Act or Ordinance of a province or territory of Canada".
Paragraph 4 refers to situations where the employee is paid salary or wages during a period when he or she is also entitled to receive compensation. It, in no way, implies that all payments made by an employer to an employee injured at work are taxed as workers' compensation benefits. The key is that the employee is entitled to receive compensation as that term is defined in the bulletin. In some cases, an employee is granted leave with full salary, if he or she suffers a work-related injury, and is also entitled to an award of workers' compensation, which is paid to the employer. In this case, our comments in paragraph 4 are relevant and the employee would report the compensation award under paragraph 56(1)(v) of the Act, and the excess as regular salary under subsection 5(1).
Press Release
As with IT-202R2, the entire press release must be considered in order to understand its meaning. The opening paragraph sets out the purpose of the Release and reads as follows:
"The Honourable Perrin Beatty, Minister of National Revenue, today announced a change in the tax treatment of workers' compensation awarded to injured workers who receive payments which are more generous than the amount of a Workers' Compensation award".
Clearly, the purpose of the press release was to announce a change in our policy with respect to the taxation of amounts awarded to injured workers under workers' compensation legislation. The new policy provided that where an employee was kept on full salary, while he was also entitled to receive workers' compensation payments, the amount awarded under the workers' compensation law would be taxed under 56(1)(v) of the Act. It did not broaden the application of paragraph 56(1)(v) to cover any amounts paid to an employee by his employer in respect of a work-related injury.
Hepburn Case
This case can be distinguished from the present situation in that Mr. Hepburn actually received workers' compensation payments for a number of years, which were subsequently replaced by payments from his employer's Pension and Benefits Fund. At no time, was XXXXXXXXXX in receipt of an award of workers' compensation.
Mr. Hepburn brought the same issue before the Tax Appeals Board for earlier taxation years, and his appeal was dismissed (67 DTC 675). However, even though the law had not changed substantively, and the facts were identical, the Tax Review Board allowed Mr. Hepburn's appeal for the later years. The Board felt that the statute should be strictly interpreted in light of social evolution that has occurred since the original decision of the Tax Appeal Board in 1967.
Given the distinguishing characteristics of this case, and our current approach to statutory interpretation, we can argue that this case is not relevant in this situation.
Interpretation 9506565
This interpretation concerned whether amounts paid by employers under the Canada Labour Code ("CLC") to workers injured on duty would fall within the purview of paragraph 56(1)(v) of the Act. Since the employers are required to pay these amounts under the CLC when an employee suffers a work-related injury, they are clearly payments made pursuant to a workers' compensation law of a province. Actually, the payments required to be made under the CLC are based on the rate of workers' compensation benefits applicable to the employee's province of residence.
In XXXXXXXXXX case, there is no legislation, of which we are aware, requiring XXXXXXXXXX to make compensation payments to XXXXXXXXXX in respect of his injury.
CONCLUSION
In our view, the payments made to XXXXXXXXXX clearly do not fall within the ambit of paragraph 56(1)(v) of the Act, because they are not compensation paid under a workers' compensation law of Ontario or Canada. The press release dated January 8, 1985, and IT-202R2 do not broaden the application of paragraph 56(1)(v) in the manner proposed by XXXXXXXXXX. The Hepburn case can be distinguished from the present situation in that Mr. Hepburn was awarded workers' compensation, which was replaced by other benefits, and the approach to statutory interpretation that was followed has changed significantly since the decision was given. Finally, our private interpretation (9506565) deals with payments that an employer must make under the compensation provisions of the Canada Labour Code, which fall clearly within the scope of paragraph 56(1)(v) of the Act.
IMPACT
We feel that this case could have far-reaching implications. Many employees in receipt of wage loss replacement benefits could argue that their injury is somehow related to their employment, and that the benefits should, therefore, be treated in the same manner as workers' compensation benefits. In our view, this is clearly not the intent of paragraph 56(1)(v) of the Act because the wording is very specific, and only refers to amounts paid under the workers' compensation law of a province or Canada. It does not refer to any amounts paid in respect of a work-related injury.
We are enclosing a copy of the press release for your review.
If we can be of further assistance, please do not hesitate to contact us.
Roy Shultis
Deputy Assistant Commissioner
Income Tax Rulings Directorate
Policy and Legislation Branch
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