Employers who continue to pay workers recuperating from workplace injuries will have to change the way those transactions are reported to Revenue Canada.
A new policy that came into effect January 1, forbids retroactively reducing a worker's earnings in the current year or amending a previous year's T4 slip.
An employer who keeps paying an injured worker -- in anticipation of workers' compensation benefits -- now needs to remove the worker from the payroll and give equivalent-to-net loans or advances.
The change is a result of a 1997 Tax Court decision involving a worker whose tax deductions recorded on his T4 and the actual tax deducted did not match. Over the course of the year, the worker was off work for several months due to an injury. While awaiting the results of a compensation claim, the employer continued to pay the worker's full salary and deducted tax. When the claim was decided and the employer received the compensation benefits on the worker's behalf, the employer sent an amendment notice to Revenue Canada to have the money the worker received from the employer while he was off work changed from salary to workers' compensation benefits. Because workers' compensation benefits are not taxable, Revenue Canada returned approximately $5,200 to the employer. However, the worker received a T4 that said tax of $12,600 had been deducted for a full year's salary. The employee applied for a tax refund and was denied because the employer had previously received the amendment. The employee then appealed to the Tax Court.
The salary and workers' compensation benefits that the worker received for the year were equivalent to the net salary he would have received if he had worked the entire year. But the Tax Court awarded the worker the refund saying that what is written on the T4 must match what was actually deducted from the worker's salary.
It is important for employers to distinguish between a loan and a salary continuance, says a backgrounder from Revenue Canada. The solution for employers who are required to continue "paying" injured employees -- as a result of a contractual agreement -- is to give them loans or advances that are equivalent to net salaries. Revenue Canada will not consider this employment income, no deductions will be required and no T4 will be issued. After the compensation benefits are received, employers can apply that money to the loans or advances given to workers.
More detailed information can be found in the 1999 Employers' Guide, Filing T4 and T4F Slips and Summary Forms or by contacting your local Revenue Canada office.