Taxes if you’re unemployed, part II

Perhaps it hasn’t been the best start to the year on the employment front. You’re collecting worker’s compensation, suing for lost wages or wrongful dismissal, or receiving social assistance. If that’s the case, be aware of the following tax tips.

Report workers’ compensation benefits (WCB).

Report the amount in Box 10 of your client’s T5007: Statement of Benefits slip, on Line 144 of the return.

Claim a deduction on Line 250 of the return for the benefits entered on Line 144.

Report settlements and awards

If you’ve received compensation for wrongful dismissal or wages owed, report it in the year received. A tip: For tax-efficiency, consider structuring a settlement so you’re paid over multiple years.

Report the amounts in Boxes 66 or 67 from your T4: Statement of Remuneration Paid, on Line 130 of your return.

Report social assistance payments

Report the amount from Box 11 of your T5007 (or Relevé 5 slip in Quebec) on Line 145.

Warning: If you lived with a spouse or common-law partner when you received the payments, the partner with the higher income reported on Line 236 (excluding the amounts on Line 214 and Line 235) must report all payments. You should claim a deduction on Line 250 for the amounts entered on Line 145.

Report social benefits repayments

Complete the chart on the T4E slip to determine how much you have to repay if: there’s an amount in Box 15 of your T4E: Statement of Employment Insurance and Other Benefits; the rate shown in Box 7 of the T4E is 30%; or you have more than $63,500 in income.

Enter the amount from Line 4 of the T4E on Lines 235 and 422 of the return.

Claim legal fees

You can claim legal fees if you paid them to establish a right to lost wages, including for wrongful dismissal. The fees are deductible even if you were unsuccessful. You may also claim legal fees paid to establish a right to other amounts reported as employment income, even if they were not directly paid by your employer.

Claim the legal fees on Line 229 of your return.

Warning: Your claim must be reduced by the amount of salary or wages recovered, including any award reimbursing your client for the fees directly.