Principal Issues: [TaxInterpretations translation] Can the taxpayer claim a deduction by virtue of subdivision e of the Income Tax Act when the taxpayer's net income is zero? Would the taxpayer be eligible for an administrative concession so also claim the deduction in a previous year?
Position: No. A taxpayer may claim deductions under subdivision e of the Act up to the taxpayer’s net income. There is no administrative concession that would allow the taxpayer to claim these deductions in another year.
Reasons: Income Tax Act.
December 11, 2009
Shawinigan-Sud Tax Services Office Income Tax Rulings Directorate François Bordeleau
Attention: Lucie Boisvert 2009-035022
Reimbursement of Employment Insurance Amount
This is further to your memorandum of December 1, 2009, in which you requested our opinion on the above subject. Specifically, you wish to know if a taxpayer can claim a deduction for the repayment of employment insurance benefits in a year other than the year in which the repayment was made.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Facts
The taxpayer included in computing income for the 2005 year employment insurance benefits totalling $XXXXXXXXXX. Following a settlement with the Commission de la santé et de la sécurité au travail ("CSST"), the taxpayer had to reimburse all the benefits received in 2005. However, since the taxpayer had no amount to include in the calculation of the taxpayer’s net income for 2008, there could be no benefit from the deduction provided for in subdivision e of the Act.
You therefore wish to know if, by administrative concession, the taxpayer could deduct the amount of the repayment in 2005, the year in which the employment insurance benefits were included in computing income.
Our Comments
In computing a taxpayer's net income, the taxpayer may deduct an amount under subdivision e of the Act - sections 60 to 66.8 inclusive - to the extent that the total of the taxpayer's income from a source and the taxpayer's taxable capital gains exceeds the deduction claimed under subdivision e. In other words, if the taxpayer has no amounts to include in computing net income for the year, the taxpayer cannot claim a deduction under subdivision e.
The repayment of employment insurance benefits by a taxpayer may be deductible either by virtue of subparagraph 60(n)(iv) or by virtue of paragraph 60(v.1) if the taxpayer would otherwise have had net income in excess of nil. The deduction by virtue of subparagraph 60(n)(iv) must be taken in the year of the repayment while the deduction by virtue of paragraph 60(v.1) is taken in respect of a repayment payable on or before April 30 of the following year.
In this case, based on the facts you have given us, it is our view that the applicable provision - permitting the deduction of amounts repaid in respect of employment insurance benefits - is paragraph 60(n)(iv). Since the taxpayer did not have any amounts to include in the taxpayer’s net income, we are of the view that the taxpayer cannot claim that deduction. In addition, there is no administrative concession available for claiming this deduction in 2005.
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 your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.