I have a client who income (T4) is exempted working income. The client received Workers’ Compensation Benefit of $27,880.38. Is this amount exempted to be reported on Form T90 on line 12?
I read this article 6 June 2022 Internal T.I. 2020-0844651I7 - Workers Compensation paid by employer First Nation | Tax Interpretations . I am concluding the WCB payment is tax exempted.
What are your thoughts?
That interpretation doesn’t specify how or where the exempt income should be reported on the T4 slip. Typically, if it is income exempt from tax under the Indian Act, it should show up in box 71, which TaxCycle automatically reports on the T90. I’m not an expert on this, and there may be exceptions. But, I usually tell my client to get their employer to re-issue the T4 slip showing the income in box 71 instead of box 14.
@Nezzer Let me clarify, the T4 is not the issue, it was recorded correctly as tax exempted. The client received T5007 for the $27,880.38 representing workers compensation benefit. I am assuming it needs to be recorded on T90.
I think that would be correct - it should go under Line 12 - other types of exempt income.
Thanks for clarifying. In that case, I would want some assurance from the client (maybe even a signed statement) that the compensation income was entirely related to his/her employment on the reserve.
If you’re making the decision that it is exempt (T90) income, you may need to defend or or support that decision at some point in the future (i.e. CRA denies the exemption, and the client tells them, “My accountant did that!”). On the other hand, if your client is telling you, “This is exempt because it was due to my employment on reserve,” they are making the decision themselves.
Unless you’re a tax lawyer, well versed in the Indian Act, CRA can’t expect you to know every detail of every law in Canada that has a tax implication. You have done your due diligence by looking up relevant legislation and asking for help from fellow professionals. If you’re still unsure, and feel it’s too risky, tell the client to get a statement from a lawyer certifying that the compensation income is exempt under the Indian Act, or tell the client you need to contact the CRA Rulings Directorate to get a ruling on this (either option may cost them a few thousand dollars).
If the T4 income is exempted, then Workers Compensation from that income must also be exempt. In fact, income from T5007, while reported, is also deducted from taxable income. It is not taxed for non-Indian tax payers so you can rest assured the same applies to the Indian return. @Nezzer if we need a tax lawyer for this, we better have a tax lawyer for everything we do.
How do you know that the person didn’t also work OFF-reserve, where the income was NOT tax-exempt, and got hurt at that off-reserve employment, which generated the compensation claim?
All I’m saying is be careful. If I know the client, and trust they are telling me the truth, I will directly ask them how/where they got hurt. If they say it happened at work, on reserve, that would be good enough for me. But, it is still a risk - trusting anybody at their word.
We do that every time we do income tax for our customers. If the person worked off reserve, he would have a T4 for that as well. But it is a rather moot point since that income isdeducted from taxable income.
WCB benefits are not taxable…Period
Thank you. that’s what I have been trying to say, but you manage to say it with fewer words.
But, typically it is included in total income (line 15000), then deducted at line 25000 to remove it from taxable income (line 26000). When included in line 15000, it may affect other tax benefits or government programs. If the income is exempt, it doesn’t show up in total income at all.
I think you misunderstand me @obhorst - “tax exempt” is not the same as “not taxable”
I have made that mistake several times - where I thought, “Oh, it doesn’t matter - it isn’t taxable anyway.” But, then it affected the client’s CCB payments, or GST credit, or qualifying for CERB, etc.
@indiramajorm asked specifically about the income being “exempt”
And I replied many posts ago, that yes, that is where it goes. Was she wrong? Was I wrong? it is @Nezzer and I that have been wasting our time. She asked a simple question and I gave her a simple answer.
As I understood it, @indiramajorm was asking whether to enter the $27,880 on T90, in which case the $27,880 will NOT be included in line 15000, or leaving it off T90, in which case the income WILL be included in line 15000 but deducted at line 250000.
Both of those options will result in no income tax payable on the $27,880. However, there may be other consequences resulting from the decision whether or not to include it in line 15000. Those consequences are not immediately obvious - they happen “behind the scenes” - after the tax return has been assessed, and the information is shared with other government departments, including various provincial programs and benefits.
I assume @indiramajorm and her client are concerned about how the amount at line 15000 may affect those other government programs and benefits. Otherwise, there would have been no reason for her to ask about this.
Thanks everyone for responding. Much appreciated!