25 January 2007 External T.I. 2006-0213961E5 F - Rémunération, assurance salaire, indemnité CSST
Principal Issues: [TaxInterpretations translation] (1) How should the employee deal with salary insurance payments received from the employer during the period when the CSST is reviewing the employee's file?
(2) How should the employee's reimbursement of salary insurance payments previously made by the employer be handled?
(3) How should the employee deal with the amounts received by the CSST?
(3) How should the employer indicate the above information, and on which slips?
Position: Salary amounts are taxable in the hands of the employee and must be reported on a T4 slip in box 14. Amounts received by an employee under a wage loss replacement plan must be included in income under paragraph 6(1)(f) and are reported in box 28 of the T4A slip. The amount that the employer offsets must be reported in box 28 of the T4A slip and is taxable in the employee's hands under paragraph 6(1)(f). Finally, the amount received by the employee from the CSST is taxable under paragraph 56(1)(v) and will be reported on the T5007 slip.
Reasons: Income Tax Act.
2006-021396
XXXXXXXXXX Nancy Turgeon, CGA
(613) 957-2082
January 25, 2007
Dear Madam,
Subject: Request for technical interpretation: Treatment when preparing tax slips
This is in response to your letter of November 2, 2006, in which you requested information about the treatment to be adopted when preparing tax slips.
Facts
Your letter states the following facts:
Year 1
- The employee applies to the Commission de la Santé et de la Sécurité du Travail ("CSST");
- Pending the CSST's response, the employer pays the employee salary insurance benefits in the amount of $40,000;
- The employee ceases to be disabled in year 1;
- Outside the period of disability, an amount of $10,000 is paid to the employee as salary;
- At the end of the year, the file is still under review and no response from the CSST has been received.
Year 2
- The CSST responds favourably to the employee's request;
- The CSST pays $30,000 in benefits for Year 1 and issues a T5007 slip to the employee for those benefits; The employer reverses the accounting entries for the $40,000 in salary insurance benefits paid in Year 1;
- The collective agreement provides that the employer must make a payment to the employee representing the difference between the amount received from the CSST and the net salary that the employee would normally have received had he been at work, i.e. $3,000 in salary (net salary of $33,000 - CSST $30,000);
- In year 2, the employer pays the employee the regular salary of $65,000.
Questions
Your request for a technical interpretation raises the following two questions:
1. In each year, what information slips and boxes should be used to properly record the information on the employee's tax slips?
2. Should amendments be made to the employee's tax slips for previous years? If so, how should this be done?
Analysis
The situation you have indicated in your letter appears to be related to an actual situation concerning a specific taxpayer. As explained in Information Circular 70-6R4, it is not the Directorate's practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should forward all relevant facts and documentation to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments, which you may find helpful.
Salaries paid
Year 1 and Year 2
The salaries paid during these two years are taxable and must be reported on a T4 slip in Box 14 for each year. The employee must include them in income for each year on line 101 of the income tax return. Salaries are taxable under subsection 5(1) of the Income Tax Act (the "Act").
Salary insurance
Year 1
Paragraph 1 of Interpretation Bulletin IT-428 provides that all amounts received on a periodic basis by an employee as compensation for loss of income from an office or employment, that were payable under a sickness, accident, disability or income maintenance insurance plan (referred to in the Bulletin as a "wage-loss replacement plan"), must be included in the employee's income under paragraph 6(1)(f). In order for an amount to be taxable under that paragraph, the employer must have contributed to the wage loss replacement plan.
The amount to be included in the employee's income under paragraph 6(1)(f) may be reduced by the amount of contributions made to the plan by the employee after 1967.
Note 1: The reduction relates to all self-paid contributions to the plan. The reduction is made pursuant to subparagraph 6(1)(f)(v). Only the net amount - the amount of the allowance received less the employee's contributions - should be reported on the individual's return.
In this case, we will assume that the $40,000 is paid to the employee under an income maintenance insurance plan as provided in paragraph 6(1)(f). Therefore, the amount received by the employee should be reported on a T4A slip in Box 28. As outlined in Guide RC 4157, you must enter the following in the notes area: "Box 28, Income from a wage-loss replacement plan - not fully funded by employee premiums. In addition, you must enter in Box 38 the code 07. The employee should report that amount on line 104 of the individual’s income tax return.
Year 2
Chapter 7 of the T4001 Employers' Guide states that an employer who continues to pay an employee’s salary before and after a workers’ compensation board claim is decided is not allowed to retroactively reduce earnings in the current year, or amend a previous-year T4 slip, and call the earnings workers’ compensation benefits. As a result, the employee must report, in the year it is received, the salary received before and after a workers’ compensation board claim is decided. The fact that the amount was reported on a T4A does not change the tax treatment since the term "remuneration" includes all amounts received by the taxpayer under subsection 5(1) to which paragraph 6(1)(f) is ancillary. Instead of amending the T4A for Year 1 regarding the amount of salary insurance, you should file a T4 for Year 2 and enter the same amount previously reported, possibly $40,000 in the "Other Information" Box and code 077. This will allow the employee to enter this amount on line 229 of his or her income tax return and obtain the deduction provided for in paragraph 8(1)(n). Paragraph 8(1)(n) provides that an employee may deduct remuneration that the employee was required to repay pursuant to an arrangement where the remuneration was paid to the employee for a period during which the employee was not performing the duties of the office or employment.
Wage compensation
Year 2
The $3,000 - representing wages paid by the employer - must be reported on a T4 slip in Box 14. The employee must include it in income for Year 2 on line 101 of the employee’s income tax return. Salaries are taxable under subsection 5(1).
CSST payment
Year 2
The amount received by the employee from the CSST, reported on the T5007 slip, is taxable pursuant to paragraph 56(1)(v) and should be reported on line 144 of the employee's return.
Note 2: An equivalent deduction is allowed pursuant to paragraph 110(1)(f) and the employee enters that amount on line 250 of the employee’s return.
Here is a table summarizing the above information:
|
Summary |
Year 1 |
Year 2 |
Total |
||
|
Inclusion |
Deduction |
Inclusion |
Deduction |
||
|
Salaries [5(1)] on T4 box #14 |
$10,000 |
$65,000 |
$75,000 |
||
|
Salary insurance [6(1)(f)] on T4A box # 28 Insurance reimbursement |
$40,000 |
Note 1 |
$40,000 |
$0 |
|
|
Salary compensation |
$3,000 |
$3,000 |
|||
|
CSST [56(1)(v)] on T5007 |
$30,000 |
Note 2 |
$30,000 |
||
We hope that these comments are of assistance.
Best regards,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch