Principal Issues: [TaxInterpretations translation]
A taxpayer has engaged in significant legal work to establish his entitlement to a CSST [Commission de la santé et de la sécurité du travail, which in Quebec administers worker’s compensation benefits] benefit. This benefit was paid in a lump sum to the taxpayer, resulting in a tax payable under Part I.2 of the Act. Could this taxpayer be entitled to an administrative exemption?
Position:
No. However, it is possible to request a remission order.
Reasons: Interpretation of the Act and previous ITRD positions.
From: Meunier, Pierre-Luc
Posted: 23 November 2009 2:06 PM
To: Tousignant, Chantale
Subject: Request for Interpretation 2009-032473
Dear Mrs. Tousignant,
This is in response to your request that we received on May 29, 2009 regarding whether a taxpayer is entitled to an administrative exemption.
More specifically, you described a situation where an individual incurred legal fees to recover CSST [[Commission de la santé et de la sécurité du travail] income in excess of $80,000. On the one hand, the legal fees are not deductible and, on the other hand, the amount received in a lump sum affected the tax on Old Age Security benefits (hereinafter "OAS").
Legal costs incurred to establish a taxpayer's entitlement to CSST compensation cannot be deducted in computing income. We have rendered a similar decision in the past in Interpretation 2008-0289751E5.
In addition, CSST benefits paid retroactively must be included in income in the year they are received by virtue of paragraph 56(1)(v). They are then deducted in calculating taxable income under subparagraph 110(1)(f)(ii).
The receipt of a lump sum for CSST benefits may result in an amount payable under Part I.2 of the Income Tax Act that is different from the amount that would have been payable if the taxpayer had received these CSST benefits over a period of several years. Similarly, the fact that a lump sum amount is included in computing a taxpayer's net income and deductible in computing the taxpayer’s taxable income may affect certain credits and benefits provided for in the Act that are based on net income.
In the event that the taxpayer considers that this result is unfair, or finds himself or herself in an extremely difficult financial situation, it is always possible for the taxpayer to request a remission order.
If you wish to guide the taxpayer through this process, we suggest that you consult the CRA remittance guide, XXXXXXXXXX.
We hope that these comments are of assistance.
Pierre-Luc Meunier
Senior Income Tax Rulings Officer
Business and Partnerships Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.