To - Vancouver District Office Enquiries and Office Examinations Section 167-18
FROM-Small Business and General Division C. Trembley (613) 957-2139
ATTENTION Ann Duess
RE: Interest on Retroactive W.C.B. Awards
This is in reply to the memorandum of April 23, 1987 from Mrs. P. Abdulla concerning the treatment of interest paid on retroactive awards from a Workers' Compensation Board. The Workers' Compensation Board of XXXXXXXX (the Board) has provided the details of three sample cases where retroactive awards were made along with accrued interest to the date of payment. In their submission they ask for our position on the following four questions:
1) Does a payment by the Board of interest on a retroactive compensation award constitute "compensation" or "interest" under the Income Tax Act?
2) If the payment is characterized as "interest", does Revenue Canada - Taxation consider it taxable in the hands of a worker or dependant?
3) Is the Board required to "report" such interest payments to Revenue Canada - Taxation?
4) Is the Board required to "withhold" a portion of any such interest payment and forward the amount withheld to Revenue Canada - Taxation?
We comment on the above questions as follows:
1) In essence, a workers' compensation award replaces the damages for personal injury or death that a worker and/or his or her family might otherwise be entitled to from his or her employer or other worker if an action were brought before a court XXXX. The Department's position with respect to pre-judgment interest on damage awards for personal injury or death is enunciated in paragraph 4 of IT-365R2 . In addition, we have expressed the view that pre-judgment interest on damage awards for wrongful dismissal is likewise not taxable.
On the same basis that pre-judgment interest on damages for personal injury or death or for wrongful dismissal is not taxable, it is our opinion that interest on retroactive workers' compensation awards calculated on payments from the date the recipient was entitled to receive the payment as a result of the award to the date the award is made, should not be included in the recipient's income for tax purposes. However, interest on such payments calculated from the date of the award to the date of actual payment should be included in the recipient's income as interest pursuant to paragraph 12(1)(c) of the income Tax Act.
2) See commentary in 1) above.
3) The Board is required to report the taxable portion of the interest on prescribed form T-5 as required under Regulation 201(1)(b)(ii) of the Income Tax Act.
4) No amount is required to be withheld from such taxable interest portion.
We trust this information will be of assistance and as requested, we are returning your copy of the Workers' Compensation Act.
ORIGINAL SIGNED BY
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch