Principal Issues: Whether 8(1)(n) can be interpreted to apply in situations where the employee did not perform the duties of office or employment appropriately.
Position: No. 8(1)(n) only applies in situations where inter alia the employee did not perform the duties of office or employment.
Reasons: Reading of the Act.
2005-011606
XXXXXXXXXX Charles Rafuse
613-957-8967
May 27, 2005
Dear XXXXXXXXXX:
Re: Paragraph 8(1)(n) of the Income Tax Act (the "Act")
This is in reply to your letter of February 9, 2005, concerning the interpretation of paragraph 8(1)(n) of the Act.
Specifically, you have noted that this paragraph permits an employee a deduction for amounts paid by him in a year as reimbursement for amounts paid to him for a period throughout which he did not perform the duties of the office or employment. You have questioned whether the phrase "did not perform the duties of the office or employment" could be interpreted to mean where he did not perform the duties of the office or employment appropriately.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
One of the requirements to qualify for the deduction under paragraph 8(1)(n) of the Act is that the taxpayer is required to reimburse any amount paid to the taxpayer for a period throughout which the taxpayer did not perform the duties of the employment. As indicated in the Department of Finance Explanatory Notes, this would apply, for example, where an employee receives his ordinary remuneration during a period of sickness or disability but is required to reimburse his employer out of any proceeds he may receive under an insurance policy or workmen's compensation plan. Accordingly, it is our view that this paragraph would not permit a deduction where an employee did perform the duties of his office or employment, albeit inappropriately.
We trust this information is helpful.
Yours truly,
Milled Azzi, CA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch