2020-0854701I7 Withholdings from CERB/CSB payments

Principal Issues: Does Regulation 102 applies for the purposes of withholding from CERB/CSB payments?

Position: Yes.

Reasons: CERB/CSB payments meet the criteria laid out under subsection 102(1) of the Income Tax Regulations. In addition, the deeming provision under subsection 100(4) of the Regulations applies where the payee does not report to an establishment of the payor. For explanation, see the response below.

Author: Agarwal, Lata
Section: 153(1), Regulations 100, 102, 103

                                                                                                     July 9, 2020

     Robert Greene                                                                        HEADQUARTERS
     Director General                                                                     Income Tax Rulings
     Individual Returns Directorate                                                Directorate
     Assessment, Benefit, and Service Branch                             Lata Agarwal, CPA,
                                                                                                    CMA, MBA
      Attn: Mr. Robert Greene

                                                                                                    2020-085470

         Tax withholdings from CERB/CESB

This memo is in response to your email of July 9, 2020, wherein you asked us to confirm whether the lump-sum payment rules under subsection 103(4) of the Income Tax Regulations (“Regulations”) would apply for the purposes of potential tax withholdings from Canada Emergency Response Benefit (CERB) or Canada Emergency Student Benefit (CESB) payments.

In your view, while the above payments do not seem to fall under the lump-sum payment description in subsection 103(6) of the Regulations, it does not make sense that the graduated withholding provided under section 102 of the Regulations would apply to the above payments.

Our comments

[All emphasis below is added.]

Part I of the Regulations provides the rules concerning the amounts to be withheld on account of tax by a person paying an amount of remuneration. In light of ITRD Division 20’s confirmation that CERB/CESB payments (payments) are taxable under paragraph 56(1)(r) of the Income Tax Act (Act), the payments are thereby subject to the withholding and remitting requirements of paragraph 153(1)(s) of the Act. 

In our view, subsection 102(1) of the Regulations would apply to these payments for the following reasons:

*    Section 101 of the Regulations says:

Every person who makes a payment described in subsection 153(1) of the Act in a taxation year shall deduct or withhold therefrom, and remit to the Receiver General, such amount, if any, as is determined in accordance with rules prescribed in this Part.

*    These periodic payments appear to fit into the criteria set out under subsection 102(1) of the Regulations that describes the rules for the purposes of withholdings from the periodic payments as follows:

Except as otherwise provided in this Part, the amount to be deducted or withheld by an employer

(a)   from any payment of remuneration (in this subsection referred to as the "payment") made to an employee in his taxation year where he reports for work at an establishment of the employer in a province, in Canada beyond the limits of any province or outside Canada, and

(b) for any pay period in which the payment is made by the employer

shall be determined for each payment in accordance with the following rules:…….

*    The different conditions of application of subsection 102(1) of the Regulations are met on the following basis:

o    A pay period as defined under subsection 100(1) of the Regulations includes a 4-week period that appears to be applicable to the benefits. CESB/CERB payments can be provided over one or more 4-week periods.
o    Pursuant to the definition “remuneration” provided under subsection 100(1) of the Regulations, remuneration includes an amount under paragraph 56(1)(r) of the Act.
o    Pursuant to the definitions of “employer” and “employee” provided under subsection 100(1) of the Regulations, the person paying the remuneration qualifies as an employer and the person receiving it, as an employee.  On that basis, the payment recipients and the government meet the criteria to be an employee and an employer, respectively, in respect of such payments.

*    Since the payment recipients would not be reporting for work, in our view, subsection 100(4) provides an appropriate deeming provision in that regard. Where the employee is not required to report for work at any of the employer's establishments, subsection 100(4) of the Regulations contains a number of relevant deeming provisions. For the remunerations other than salary, wages, or commissions, paragraph 100(4)(b) provides that the employee shall be deemed to report for work at the employer's establishment in the province where he or she resides. Paragraph 100(4)(b) further provides that if the employer does not have an establishment in that province, the employer shall be deemed to have an establishment there.

We are of the view that the CESB/CERB payments fit in with the requirements of subsection 102(1) of the Regulations such that it applies to these benefits for the purposes of determining the withholding requirements mandated under subsection 153(1) of the Act.

Hope the above helps. Should you have need for any further clarification, please let me know.

Yours truly,

Lata Agarwal
Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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