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:
Do long-term disability payments qualify for the pension income tax credit under subsection 118(3) of the Act?
Position:
Question of fact - depends on whether the payments are in respect of a life annuity. If the long-term disability benefits form part of early retirement benefits provided because of disability, they may be "in respect of a life annuity." However, if the payments are income to replace salary or wages, and retirement benefits continue to accrue that will fund a pension commencing at retirement, they may not be payments "in respect of a life annuity."
Reasons:
The definition of pension income provided under subsection 118(7) of the Act / Previous opinion.
XXXXXXXXXX 2001-008956
Randy Hewlett, B. Comm.
August 22, 2001
Dear XXXXXXXXXX:
Re: Pension Income Tax Credit
We are writing in response to your letter dated June 11, 2001, wherein you requested our opinion on whether "long-term disability pension" income reported in box 28 of a T4A received from an insurance company, through your employer XXXXXXXXXX, qualifies for the pension income non-refundable tax credit.
In your letter, you stated that you are 66 years old and the only company remuneration received is a long-term disability pension. Under the plan, you will remain on long-term disability until mid 2002. You feel that under most plans the long-term disability pension would convert to an earned company pension at age 65, and be eligible for the pension income non-refundable tax credit. As well, the disability pension you receive approximates the income you would receive under the company pension. You request a ruling on whether this is the intended result under the Income Tax Act (the Act) or if an exception can be made due to your particular circumstances.
The situation you describe is an actual fact situation involving completed or ongoing transactions. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
The non-refundable tax credit for qualifying pension income is provided for under subsection 118(3) of the Act. The definition of "pension income" in subsection 118(7) of the Act includes "a payment in respect of a life annuity out of or under a superannuation or pension plan." Unfortunately, we do not have sufficient information concerning your plan to determine if the payments are "in respect of a life annuity."
Generally, a "life annuity" is a contract issued by a life insurance company, which provides periodic payments for life with or without a guaranteed term. If the long-term disability benefits you receive form part of early retirement benefits provided because of your disability, they might indeed be "in respect of a life annuity." However, if the payments are income to replace salary or wages, and you continue to accrue retirement benefits that will fund your pension commencing at retirement, they may not be payments "in respect of a life annuity." Since the disability pension you receive will change to a retirement pension in 2002, it is likely the amounts received are not from a life annuity and therefore would not qualify for the pension income non-refundable tax credit. However, you should review the plan and discuss the issue with your plan administrator.
If you require further assistance please contact the Client Services Division of your local Tax Services Office. We trust our comments will be of assistance to you.
Yours truly,
Terry Young, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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