| September 18, 1989 | |
| Remission Committee | Technical Interpretations |
| Mr. A.G. Cockell | Division |
| Chairman | F.B. Fontaine |
| 957-9228 |
SUBJECT: REMISSION REQUEST 19(1)
19(1) (the "taxpayer") wrote to our Minister requesting administrative relief under the Financial Administration Act and indicating that he had reported non-taxable age loss replacement plan benefits (the "benefits") for the 1976 to 1987 taxation years.
19(1) He quoted IT-428 dated April 30, 1979 which discusses that in accordance with ITAR 19, wage loss replacement plan benefits would not be taxable if they were attributable to an event occurring before 1974 and the particular plan was established before June 19, 1971.
Letters on file from the taxpayer's physician and 19(1) (the taxpayer's previous employer), confirm respectively, that the event leading to the taxpayer's disability started in 1973 and that the Plan came into force March 1, 1971.
According to extracts from the Plan the benefit is equal to 66 2/3 of the taxpayer's salary less any CPP disability benefits which the taxpayer also receives. The Plan provides that the benefits would be subject to tax if the event leading to the disability occurred after December 31, 1973. The insurer withheld no tax at source from the payments.
21(1)(b)
The taxpayer's average annual total earnings for the years 1977 to 1983, including the benefits, is 19(1) However, exclusion from income of the benefits will result in an overall decrease in federal taxes of 19(1) for which the taxpayer seeks remission.
Given the taxpayer's level of gross earnings, extreme hardship is not present in the circumstances.
Although Assessing's memorandum states that the taxpayer have been incorrectly advised by the Department, no written evidence was submitted to support the taxpayer' s allegation of incorrect advice. However, 19(1) claims that he disputed the taxability of the payments on the grounds that they were akin to workers' compensation payments. Following his alleged discussions with the District Office on the subject he commenced to make instalment payments as he understood he was obliged to do because of the absence of deductions at source. Instalment payments have been made in all returns still available (1983 is the earliest).
It appears that the insurer 24(1) knew that the payments were not taxable because Regulation 102(1) requires withholding at source in respect of "salary or wages" which includes income under paragraph 6(1)(f). Reporting of all periodic payments under an "income maintenance insurance plan" is nevertheless required under Regulation 200(2)(f)(iii). As a minimum, a person knowledgeable in tax matters should have queried the insurer on the taxability or the absence of source deductions. Not being knowledgeable in tax matters and possibly being more concerned with his serious health problems at that time 19(1) appeared to equate receipt of the T4A slip with taxability. This is not an unexpected conclusion for an unsophisticated taxpayer such as 19(1) . Accordingly, on the basis of a significant financial setback and naivety in the face of complications extraordinary to those normally encountered by a pensioner, we recommend that the tax overpayments be refunded by way of remission.
19(1)
19(1)
As in the case of the taxpayer there is no evidence of extreme hardship or departmental error with regard to the spouse. However, it is our view that there is some financial setback together with conditions beyond the spouse's control that prevented her from claiming the taxpayer's unused deductions. The amount of federal tax subject to remission as calculated by the Assessing Directorate is 19(1) refers to the 1978 to 1984 taxation years. This figure includes the married exemption allowed to the spouse for those years except 1979. We recommend that the overpayment of tax be refunded to the spouse.
R.E. ThompsonChief, Technical Review SectionTechnical Interpretations DivisionLegislative & IntergovernmentalAffairs Branch