Principal Issues: [TaxInterpretations translation] 1. Can an employee deduct unused contributions the employee made to a wage-loss replacement plan in the following situations?
(a) the employer pays benefits by virtue of a partially funded plan directly to the employee;
(b) the employee receives benefits from a trustee by virtue of a plan that is partially funded by the employer and the employer controls certain terms and conditions and determines eligibility for benefits.
2. In both of the above cases, how do you report in the income tax return the amount of wage-loss benefits received by a taxpayer under such a plan, as well as the amount of the deduction for contributions made by the taxpayer?
Position: 1. Yes, in the two cases.
2. In both cases, the gross amount of wage-loss replacement benefits received by a taxpayer under such a plan should be reported on line 101 of the tax return and the deduction for unused contributions made by the taxpayer should be reported on line 232 of the tax return.
Reasons: 1. Application of subparagraphs 6(1)(f)(iv) and (v).
2. We had an informal discussion with Dian Hardiman of the Legislative Policy and Research Section, who confirmed that wage loss replacement benefits paid by an employer to an employee should be reported on a T4 information slip and that lines 101 and 232 of the employee's income tax return should be used.
December 16, 2010
Jonquière Tax Centre Income Tax Rulings Directorate
Client Services
Business and Partnerships Division
Attention: Marie-Ève Duchesne Lucie Allaire, Advocate, CGA. D. Fisc.
2010-038046Deductibility of wage-loss replacement plan contributions
This memorandum is in response to your email of September 14, 2010, in which you requested our comments regarding the deductibility of contributions made to a wage-loss replacement plan by an employee in certain situations.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
In particular, you wish to know if an employee can deduct, from benefits received from a wage-loss replacement plan, contributions the employee made to that plan in previous years that were not deducted from income in any other year.
This question is raised regarding the following two situations:
- The employer pays benefits directly to the employee under a wage loss replacement plan that is partially funded by the employer;
- The employee receives benefits from a trustee under a wage-loss replacement plan that is partially funded by the employer and where the employer controls certain terms and conditions and determines eligibility for benefits.
If the employee can deduct those contributions, you ask how that deduction should be reported on the employee's income tax return.
Our Comments
Paragraph 6(1)(f) provides, among other things, that amounts received by a taxpayer by virtue of a sickness or accident insurance plan, a disability insurance plan or an income maintenance insurance plan (these plans are referred to as a wage-loss replacement plan) under which the taxpayer's employer has contributed are to be included in computing the taxpayer's income, if the amounts are received as compensation payable on a periodic basis in respect of the loss of all or any part of the taxpayer’s income from an office or employment.
In general, contributions made to a plan described in subparagraphs 6(1)(f)(i) to (iii) by an employee may be deducted, where applicable, under subparagraph 6(1)(f)(v) from benefits received from the same plan. This is because the contributions, which can be deducted, are made by the employee before the end of the year and after 1967, or after a taxation year ending after 1971 in which an amount was taxed by virtue of paragraph 6(1)(f).
Where an employer pays benefits directly to an employee under a wage-loss replacement plan of which the employer funds a portion, or where an employee receives benefits from the same plan for which the employer funds a portion, controls certain terms and conditions, and determines eligibility for benefits, the wage-loss replacement benefits must be reported on a T4 information slip.
Thus, in these cases, the employee has to report the gross amount of wage-loss replacement benefits on line 101 of the employee’s income tax return and can deduct any unused contributions on line 232 of the employee’s income tax return.
Furthermore, where a trustee or an insurance company pays benefits to an employee from a wage-loss replacement plan over which the employer does not exercise control, or where the employer does not determine eligibility for benefits, the trustee or insurance company is required to report the benefit amounts on a T4A information slip. In these cases, the employee is required to report the net amount, that is, the benefits received in a year minus the contributions the employee made to the same plan - provided these contributions were not used to reduce other benefit amounts in a previous year - on line 104 of the employee's tax return.
Finally, we wish to draw your attention to the fact that contributions to the Canada Pension Plan are no longer required for benefits paid from a wage-loss replacement plan.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada 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 the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be made by you to Ms. Celine Charbonneau at (613) 957-2137.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.