As we come up on the federal budget, I asked my tweeps what was their budget wish list. I received an interesting reply.
Many Canadians might not know that Canada’s treatment of strike pay is, in a word, curious. This paper by the esteemed Ben Alarie (who you really should follow on twitter: @BAlarie) walks you through the details which I will summarize here. If you are in a union, you are paying union dues. These union dues are deductible from income for tax purposes, much like RRSP contributions. If these union dues, in whole or in part, are diverted to a strike fund, then the union does not pay tax on these funds. If you then go on strike and receive funds from this strike fund in lieu of your salary, then these funds are….not taxable.
Huh, you say. That does not make sense (or at least I hope you are). After all, consider the tax treatment of RRSP contributions. Your contributions are deductible for tax purposes in exchange for withdrawals being taxable. TSFA contributions are the opposite. TSFA contributions are paid from after-tax dollars in exchange for withdrawals being not taxable. By the same logic, payments into the strike fund should be deductible if and only if payments from the strike fund are taxable. Because the union also does not pay tax on these funds, it means this income is never, ever subject to tax. I can’t think of a single other example where income is not taxed at any point.
So what is the ‘logic’ of these funds not being taxable? This comes from the Supreme Court decision in 1990 in Fries v. The Queen. The court ruled that strike pay is not income. Instead, as noted by Alarie, “strike pay is generally concerned with providing workers and their families with day-to-day sustenance over the course of a given labour dispute. Strike pay is not usually concerned with income replacement as such.” (p. 440) But the problem is that this policy is not fair based on horizontal equity grounds. As noted by Ronald Beer in our twitter exchange non-unionized and unionized workers without a strike fund workers facing a labour dispute are unable to fund their day-to-day substance during a labour dispute out of pre-tax dollars. They instead cover these costs out of savings from after-tax dollars or are forced to go on EI, which is a taxable payment. So unionized workers are treated favourably compared to non-unionized workers and unionized workers without a strike fund.
So what can we do? We could somehow set up a system where those without strike pay can set up a fund that is treated the same as strike pay. However, the administrative and compliance costs of such a fund would be ridiculously high. Alternatively, we can make strike pay taxable. While Alarie notes the difficulties with doing so, this certainly seems to be the more logical thing to do.