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:
An employee is injured at work. The employer, which is not insured under the WSIB of Ontario, makes periodic payments to the employee equal to the amount that would have been paid by the WSIB had the employer been insured. What is the income tax treatment of the payments?
Position TAKEN:
The payments are taxable under paragraph 6(1)(a).
Reasons:
The payments are not "compensation received under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death".
2003-018282
XXXXXXXXXX T. Young, CA
February 17, 2003
Dear XXXXXXXXXX:
Re: Payments in lieu of Workers Safety Insurance Board ("WSIB") Benefits
We are writing in response to your letters to the Ottawa Technology Centre dated June 14 and September 2002, which were forwarded to us on January 13, 2003 by the Sudbury Taxation Centre. We also acknowledge our subsequent conversations (Oulton/XXXXXXXXX, January 16; Young/XXXXXXXXXX, February 13). On behalf of the Canada Customs and Revenue Agency, we apologize for the delay in providing a written response to your inquiry.
In your letter, you state that one of the company's employees was injured in an accident while at work resulting in her being unable to work from XXXXXXXXXX. Because the company is not insured under the WSIB nor under a private insurance plan, the company decided to pay her a weekly salary equal to the amount she would have received had the company been insured through the WSIB.
In the interest of fairness, you have requested that these payments from the company should be tax-free, either as a matter of law or as an exception due to the circumstances surrounding the payments, since WSIB payments are not included in net income.
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 ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. However, we are prepared to provide the following comments, which may be of assistance to you.
Payments received "under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death" are included in a taxpayer's income pursuant to paragraph 56(1)(v) of the Income Tax Act (the "Act"). The taxpayer is also entitled to a deduction from income pursuant to subparagraph 110(1)(f)(ii) of the Act. The result is that there is no effect on the taxpayer's taxable income other than certain income-based deductions and credits may be reduced as a result of the inclusion of the payments in net income. However, paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) only apply to payments received under these compensation laws.
Where an employee is injured and the employer, which is not covered under an employers' or workers' compensation law, pays the employee, the payments must be included in the employee's income pursuant to paragraph 6(1)(a) of the Act. This is true even if the payments are received for a workplace injury where the employee may have qualified for benefits from the WSIB had the employer been so covered. The courts have upheld this position (see for example, the Federal Court of Appeal decision Suchon v. The Queen (2002 DTC 7151).
The role of the Canada Customs and Revenue Agency (CCRA) is to administer the Act as passed by Parliament, while the Department of Finance is responsible for tax policy and any proposed changes to the Act. The CCRA is committed to applying the tax laws in a consistent and fair manner. The amount of tax payable for a particular year is based on the law in force for that year and the CCRA does not have the discretion or right to decrease the amount payable.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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