Principal Issues: 1. Is the settlement taxable to the Estate? 2. If yes, is the amount taxable as a capital gain or income? 3. Are the legal fees deductible to the Estate?
Position: 1. The funds awarded should be included in income. 2. Assuming the shares were held on capital account, the award is a taxable capital gain to the Estate. 3. Question of fact, but likely yes.
Reasons: The settlement or award is considered "compensation for property injuriously affected" and would give rise to a capital gain by virtue of paragraph (e) of the definition of "proceeds of disposition" in section 54 of the Act. Assuming that there were no other issues to which the settlement pertained that might require some form of apportionment, we would consider the legal fees in this fact situation as essential to the receipt of the proceeds of disposition and therefore deductible in computing the gain by virtue of subparagraph 40(1)(a)(i) of the Act.