Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. Whether retirement benefits under the New Brunswick Worker's Compensation Act should be included in income under paragraph 56(1)(v)?
2. Should a T5007 be issued when the individual's pension entitlement is transferred to an insurance company/annuity holder who then administers the pension payments?
Position:
1. Included in income under paragraph 56(1)(v) of the Act.
2. No.
Reasons:
1. Certain benefits provided under the worker's compensation acts may also be considered payments that qualify as a pension benefit under paragraph 56(1)(a) of the Act. However, since the provisions of paragraph 56(1)(v) of the Act are more specific than the provisions of paragraph 56(1)(a) of the Act, any payments under the New Brunswick WCA will be considered worker's compensation payments and not pension income payments for purposes of the Act.
2. Since the purchase of annuities by the Workplace Health, Safety and Compensation Commission of New Brunswick is merely a funding mechanism for delivering the pension program, no amount should be included in the individuals income when the pension entitlement is transferred to the insurance companies.
January 21, 2000
Information Returns Section HEADQUARTERS
Business Returns Processing Division Karen Power, CA
Assessment and Collections Branch (613) 957-8953
Vanier Towers
Attention: Joe Hartwick
1999-000411
New Brunswick WCB
We are writing in reply to your letter of August 17, 1999, concerning the taxation of retirement income benefits paid under the New Brunswick Worker's Compensation Act (the "WCA").
The situation involves the surviving spouse of an injured worker who has been receiving monthly benefits until she reached the age of 65 at which time her monthly benefits ceased and she became entitled to a pension basically equivalent to 8% of the benefits paid to her previously. The surviving spouse was entitled to a pension of $XXXXXXXXXX, which she was required to receive under one of the following plans:
1. A life annuity with a guaranteed period of five years.
2. A life annuity with a guaranteed period of ten years.
3. A life annuity with no guarantee.
The surviving spouse elected the first option. The payment of $XXXXXXXXXX was made directly to the surviving spouse's annuity carrier and she is now receiving $XXXXXXXXXX per month from the carrier. At the time, the pension payment was made to the annuity carrier a T5007 was issued to the surviving spouse for the entire amount. Since the amount is required to be included in income it has negatively impacted the surviving spouse's old age supplement, GST credit and age tax credit.
You have asked for our comments on whether the pension payments would be considered taxable under subparagraph 56(1)(a)(i) of the Act or as worker's compensation payments taxable under paragraph 56(1)(v) of the Act. Furthermore, you enquire whether the amounts should be reported when the initial payment is made to the annuity carrier or rather when monthly annuity payments are received.
Prior to 1999, it was generally our view that benefits paid out of most Worker's Compensation Board's pension funds would fall within the definition of "superannuation or pension benefit" as this term is defined in subsection 248(1) of the Act. In May of 1999, we re-examined the tax treatment of retirement benefits under the Ontario Workplace Safety and Insurance Act ("WISA"). The WSIA is the reformed Ontario workers' compensation legislation and it replaced the Workers' Compensation Act (Ontario) effective January 1, 1998. Sections 43 to 48 of the WSIA fall under the heading, Compensation. Generally, section 43 provides for the compensation for the loss of salary as a result of an injury, while section 45 provides for the retirement benefits.
Subsection 45(2) of the WSIA provides that "If a worker has received payments for loss of earnings for 12 continuous months, the Board shall set aside for him or her an amount equal to 5 per cent of every subsequent payment to him or her for loss of earnings." This amount does not reduce the benefit payments made to the worker. The worker can also elect to contribute an additional amount, up to 5% of his or her payments. Subsection 45(5) of the WSIA provides that "When the worker reaches 65 years of age, he or she is entitled to receive a retirement benefit under this section. The amount of the benefit is the sum of the amount set aside by the Board and the contribution by the worker, if any, plus the accumulated investment income on those amounts." Subsection 45(6) and the regulations provide for various types of payments to the worker at age 65. These payments are basically life annuities for the worker or for the worker and spouse, with or without a guaranteed term.
As a result of our re-examination, we concluded that retirement benefits paid pursuant to section 45 of the WSIA would be amounts included in income pursuant to paragraph 56(1)(v) and deductible under subparagraph 110(1)(f)(ii) of the Act. Under paragraph 56(1)(v) of the Act, compensation received in any year under an employees' or workers' compensation law of Canada or a province in respect of an injury, a disability or death is included in the recipient's income for that year.
We wish to advise that the interpretation that we provided you in our letter dated July 30, 1998 dealing with Ontario is incorrect and should be amended to reflect the above position. We apologize for any inconvenience.
In answering the questions raised in your current submission, we have reviewed the New Brunswick WCA (Chapter W-13). Section 38 of this Act provides for the retirement benefits and the pension fund provided for is very similar to the fund provided for under WISA. Accordingly, in our view, any amounts received under the New Brunswick WCA, including retirement income benefits to injured workers or their survivors when they reach age 65, would also be amounts included in income pursuant to paragraph 56(1)(v) and deductible under subparagraph 110(1)(f)(ii) of the Act.
We recognize that certain benefits provided under the worker's compensation acts may also be considered payments that qualify as a pension benefit under paragraph 56(1)(a) of the Act. However, since the provisions of paragraph 56(1)(v) of the Act are more specific than the provisions of paragraph 56(1)(a) of the Act, any payments under the New Brunswick WCA will be considered worker's compensation payments and not pension income payments for purposes of the Act.
In the above situation the delivery mechanism for the worker's compensation pension benefits is through the purchase of annuities from private insurance companies. It is our understanding that the purchase of annuities by the Workplace Health, Safety and Compensation Commission of New Brunswick is merely a funding mechanism for delivering the program. The total pension entitlement is transferred to the insurance companies who then handles the day-to-day administration of the program. In our view, no amount should be included in the individual's income when the pension entitlement is transferred to the insurance companies.
Paragraph 56(1)(d) of the Act includes in income "any amount received by the taxpayer in the year as an annuity payment other than an amount (I) otherwise required to be included in computing the taxpayer's income for the year...". As noted above, the pension benefits payable under worker's compensation acts would be included in income pursuant to paragraph 56(1)(v) of the Act, and would therefore, not be covered by paragraph 56(1)(d) of the Act.
Section 232 of the Income Tax Regulations require every person who pays an amount for workers' compensation benefits to file an information return to report those payments. The information return required is the T5007 information return. In our view, the insurance companies/annuity holders should prepare a form T5007 each year for an injured worker or their survivors reflecting the amount of compensation received throughout the year.
As you may be aware, this same issue has arisen with respect to Saskatchewan Workers Compensation pension benefits. Individuals in Saskatchewan, who had received T5007s indicating the total payment made to the insurance companies, have had their tax returns reassessed to remove the income inclusion.
Roberta Albert, CA
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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