Workers’ compensation benefits are a form of reparation available to all employees in Canada. They are calculated and paid to an employee to compensate for employment income loss due to a work-related injury or illness that requires him to take time off work, a disability caused by a work-related incident, or survivor benefits paid to the spouse or dependents as income replacement for an employee who died in a work-related incident.
Reporting Workers’ Compensation Benefits
You are required to report workers’ compensation benefits that you have received on your personal income tax return. If you are filing your return and you have received workers’ compensation benefits, you need your T4 and your T5007 to report the payment you received from your employer.
T5007 Statement of Benefits
The T5007 Statement of Benefits form that you receive from your employer states the amount of workers’ compensation benefits that you received in the previous year. Report the amount of your benefit, which is shown in box 10 of your T5007, on line 144 of your personal income tax return.
Repayment of Workers’ Compensation Benefits
There are certain cases where you must repay benefits to your employer. While you are completing your income tax return, deduct the same amount of your benefit (shown in box 10) on line 250. This deduction allows your workers’ compensation benefits to be deducted from your income. This ensures that you are not taxed on both amounts.
Report your employment income — box 14 of your T4 slips — on line 101 of your return as normal. You can find the amount of your workers’ compensation benefit that was paid as a portion of your income on your T4 slip. Report this on line 229. While this amount is not subject to tax, you are still required to report it.
If you anticipate receiving workers’ compensation benefits, you can repay this income to your employer in the preceding year. The repayment amount is reported in box 77 of your T4. In this case, it may be possible to report a deduction on line 229 of your return (as other employment expenses). This line is used for expenses paid by you to earn employment income. If you report an amount on line 229, you must also complete and submit Form T7777, Statement of Employment Expenses. You are also required to have Form T2200, Declaration of Conditions of Employment, on hand in case the Canada Revenue Agency requests it.
How Other Tax Benefits Are Affected
Other benefits paid to you which include the Canada Child Benefit, GST/HST credit, old age security, guaranteed income supplement and other tax credits are affected by the reporting of the workers’ compensation benefit that you have received. All non-taxable benefits are used when calculating other such benefits. The amount you received in workers’ compensation benefits can affect the other benefit amounts previously mentioned if you are qualified to receive them. This is why your workers’ compensation benefit must be reported correctly on your personal income tax return.