It appears that the contracts of service and for service, are becoming ever more important in making sure that your status surrounding your status in the eyes of various government agencies.

In this case because no services at all were being provided by workers on long term disability, CRA was wrong in claiming that CPP disability payments were taxable income.

CRA has really sunk to a low on this one. Let’s take someone who is unable to work, collects disability payments and tax them. Nice work CRA. I am glad your efforts failed.

For more information on tax problems go to Tax Audit Solutions [1] www.taxauditsolutions.ca

Dan White

From Benefits Canada

Briefly: “Court of Appeal rules on LTD benefits” and more news

February 12, 2010

The Federal Court of Appeal has rendered a decision that will be of interest to employers that provide long-term disability (LTD) benefits to their employees through self-funded or administrative services only (ASO) arrangements, according to Hicks Morley’s FTR Now.

According to the Court’s decision in Toronto Transit Commission v. Minister of National Revenue (TTC), Canada Pension Plan (CPP) contributions are not required on LTD payments made under an ASO plan, even if it is determined that employment insurance (EI) premiums must be made.

The TTC case concerns an appeal of the assessment of the Minister of National Revenue that monthly ASO disability payments paid to two TTC employees constituted remuneration for pensionable employment and thus were subject to an employer’s CPP contribution pursuant to Subsection 9(1) of the CPP.

At the Tax Court of Canada, the TTC’s position was that the definition of employment under the CPP requires the performance of services. But, as the disabled employees performed no services, the LTD payments were not pensionable. The Tax Court concluded that CPP contributions are required to be deducted and remitted from LTD payments made from the TTC’s ASO plan.

Upon appeal by the TTC, the Federal Court of Appeal concluded that a payment has to be made in exchange for the actual performance of service under a contract of employment for it to constitute pensionable earnings, and there is no performance of services in the case of an employee who is in receipt of LTD payments.

As a result, the Federal Court of Appeal held that the TTC was not required to deduct CPP contributions from the LTD payments made under its ASO arrangement as the employees were not performing services during their period of disability.

Implications

The Hicks Morley bulletin explains that unless the decision is successfully appealed, the TTC case provides strong support for the position that CPP contributions are not required to be deducted and remitted on LTD payments made under an ASO plan, even if it is determined that EI premiums must be made.