A bank, wishes to establish a compensation plan for its Ontario-resident employees, who suffer work-related injuries or illnesses, pursuant to 239.1(2) of the Canada Labour Code, which provides:
Every employer shall subscribe to a plan that provides an employee who is absent from work due to work-related illness or injury with wage replacement, payable at an equivalent rate to that provided for under the applicable workers’ compensation legislation in the employee’s province of permanent residence.
The provincial legislation is Ontario's Workplace Safety and Insurance legislation. The employer will use an intermediary, to manage and pay the compensation.
The Directorate stated:
For compensation to be considered subject to paragraph 56(1)(v) of the Act, it must not be governed by a contractual undertaking. …
In addition, since employees reside in Ontario, the compensation paid must not exceed the compensation payable under Ontario's Workplace Safety and Insurance Act. If the employer guarantees the full amount of wages or a percentage that is greater than the percentage payable under Ontario's workers' compensation legislation, the amounts received by the employee in excess of the compensation payable under the provincial legislation are fully taxable. …
[B]enefits received by an employee pursuant to an employer's obligation under the Code are considered to be received under a federal workers' compensation statute for the purposes of paragraph 56(1)(v) and subparagraph 110(1)(f)(ii). …
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 the employee's income pursuant to paragraph 56(1)(v). That same allowance is deductible in computing the employee's taxable income pursuant to subparagraph 110(1)(f)(ii). No withholding under subsection 153(1) is required … . [T]he use of the administrative services of an intermediary does not change the above tax consequences.