4 December 2006 Internal T.I. 2006-0211061I7 F - Rentes pour incapacité et stabilisation sociale
Principal Issues: [TaxInterpretations translation] (1) Are CSST disability pensions under the Workers' Compensation Act amounts described in paragraph 56(1)(v) and subparagraph 110(1)(f)(ii)?
(2) Are social stabilization financial assistance payments made in accordance with the Regulation respecting social stabilization amounts described in paragraph 56(1)(v) and subparagraph 110(1)(f)(ii)?
(3) Does the person paying these amounts have to file an information return in prescribed form (T5007 slip) in respect of these payments?
Position: Yes to all three questions
Reasons: Amounts are paid to compensate for loss of employment income as a result of disability, illness or injury under the Workers' Compensation Act. Wording of paragraph 56(1)(v) and subparagraph 110(1)(f)(ii) of the Income Tax Act, IT-202R2 and subsection 232(1) of the Income Tax Regulations.
December 4, 2006
Mr. Daniel Beaudoin Headquarters Information Returns Section Anne Dagenais, Advocate Validation and Assessment of (613) 957-2121 Business Returns Division 2006-021106
Request for technical interpretation--Disability pensions and social stabilization financial assistance payments
This is in response to your emails of February 22, 2006, and October 20, 2006, concerning the above subject matter. We apologize for the delay in responding to your questions.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act").
Facts
According to your email, the Commission de la santé et de la sécurité du travail du Québec (the "CSST") pays pensions for total and permanent disability, pensions for partial and permanent disability, pensions ["rentes"] for total and temporary disability and pensions for partial and temporary disability. Those benefits are subject to the Workers’ Compensation Act, R.S.Q., c. A-3.
In addition, the CSST also makes financial assistance payments for social stabilization in accordance with the Regulation respecting social stabilization.
Questions
(1) Are pensions paid to an individual by the CSST pursuant to the Workers' Compensation Act by reason of disability amounts described in paragraph 56(1)(v) and subparagraph 110(1)(f)(ii)?
(2) Are social stabilization financial assistance payments made in accordance with the Social Stabilization Programs Regulations amounts described in paragraph 56(1)(v) and subparagraph 110(1)(f)(ii)?
(3) Should a T5007 slip be issued for the above amounts?
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of our Directorate not to issue written opinions on proposed transactions otherwise than by way of advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments which may not apply in full to the situation you have submitted to us.
Compensation received under a workers' compensation act of Canada or of a province in respect of injury, disability or death must be included in computing a taxpayer's income under paragraph 56(1)(v). The benefit is then deductible in computing taxable income pursuant to subparagraph 110(1)(f)(ii).
Interpretation Bulletin IT-202R2, dated September 19, 1985, defines "compensation" to include, inter alia, any amount paid by a workers' compensation board to an employee or the employee’s dependants for an illness, injury or death in the performance of the employee’s duties of employment.
(1) Disability pensions
Pensions for total and permanent incapacity, pensions for partial and permanent incapacity, pensions for total and temporary incapacity and pensions for partial and temporary incapacity are paid by the CSST in accordance with the Workers' Compensation Act.
Section 38 of the Workers’ Compensation Act reads as follows:
Total and permanent disability
(1) Where permanent total disability results from an accident, the worker is entitled, for life, to an amount equal annually to 90% of his weighted net income.
Partial and permanent disability
(2) In the case of permanent partial disability, the worker is entitled, for life, to a payment provided for in subsection 1 according to the degree of his or her disability.
Section 42 of the Workers' Compensation Act reads as follows:
Temporary and total disability
In the case of temporary total disability, the indemnity shall be the same as that prescribed by subsection 1 of section 38 but it shall be payable only so long as the disability lasts, subject to the provisions of paragraph a of subsection 1 of section 3.
Temporary and partial disability
In the case of temporary partial disability, the indemnity shall be the same as that prescribed by subsections 2, 3 and 4 of section 38, but shall be payable, subject to the provisions of paragraph a of subsection 1 of section 3, only so long as the disability lasts.
In this situation, the amounts received are compensation in lieu of wages and are calculated on the basis of the individual's wages and, if necessary, adjusted in proportion to the percentage of his or her disability. It is our view that an amount paid under the provisions of section 38 or 42 of the Workers' Compensation Act constitutes compensation within the meaning of paragraph 56(1)(v). Thus, we are of the view that an individual who receives the above-described pensions should add that amount in computing net income and deduct the same amount in computing taxable income.
(2) Financial assistance payments for social stabilization
The Regulation respecting Social Stabilization and Economic Stabilization Programs (the "Regulation") sets out the implementing rules for financial assistance payments for social stabilization. Section 4 of the Regulation reads as follows:
A worker is entitled to benefit from financial assistance in respect of economic stabilization if he:
(1) is unable, as a result of an accident, an occupation disease or an aggravation, to carry on his usual employment;
(2) carries on other full-time or part-time employment;
(3) derives from the other employment an income that is less than the income that he derived from the employment that he became unable to carry on as a result of an accident or an occupational disease or, in the case of an aggravation, that is less than the income used as the basis for computing his indemnity for permanent disability, where that is the case, or otherwise, as the basis for computing his indemnity for temporary disability; and
(4) does not receive an indemnity for temporary total disability.
For the purpose of making the comparison referred to in subparagraph 3, the income that a worker derived from the employment that he became unable to carry on shall be revalorized each year in accordance with sections 10 to 14.
Financial assistance payments consist of monthly amounts paid to a person who has received compensation from the CSST following a work accident and who subsequently returns to work at a lower salary (subject to certain conditions). The amounts paid serve to compensate for the difference between the person's wages before the accident and the person’s wages after the accident.
Amounts paid as financial assistance payments are amounts paid under a workers' compensation act of a province to compensate for loss of employment income as a result of disability, illness or injury. Consequently, we are of the view that amounts paid as financial assistance payments are compensation payments within the meaning of subsection 56(1)(v) and subparagraph 110(1)(f)(ii).
(3) Does the person paying the amounts have to complete an information return in prescribed form (T5007 slip) in respect of those payments?
Subsection 232(1) of the Income Tax Regulations requires every person who pays an amount in respect of compensation described in subparagraph 110(1)(f)(ii) (other than in respect of certain compensation described in subsection 232(4) of the Income Tax Regulations) to make an information return in prescribed form in respect of that payment. Compensation referred to in subparagraph 110(1)(f)(ii) is compensation received under an employees’ or workers’ compensation law of Canada or a province in respect of an injury, disability or death, except any such compensation received by a person as the employer or former employer of the person in respect of whose injury, disability or death the compensation was paid.
Guide T4115 "T5007 Guide—Return of Benefits" states on page 4 that workers' compensation benefits may include, inter alia, wage-loss replacement income and compensation for future loss of earnings.
Consequently, we are of the view that the CSST should file the prescribed T5007 - Statement of Benefits - forms for disability pensions or social stabilization financial assistance payments.
These comments are not advance income tax rulings and do not bind the CRA with respect to any particular factual situation.
We hope you find these comments of assistance. Should you require any additional information regarding the content of this document, please do not hesitate to contact us.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate