Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: prejudgment interest on retroactive WCB awards
Position TAKEN: not taxable in accordance Dept's position taken in April 1985 Press Release
Reasons FOR POSITION TAKEN: as stated above
August 22, 1995
Assessment of Returns Directorate HEADQUARTERS
T2/T3 Programs Division A. Humenuk
W. S. Hume, Director 957-8953
Attention: Lynne Webb
950557
Interest Payable on Retroactive W.C.B. Awards
We are replying to your memorandum of February 28, 1995 concerning the taxation on interest payable on a retroactive Workers' Compensation Board payment. We apologize for the delay in our response.
The Department's general position on such interest is found in paragraph 12 of Interpretation Bulletin IT-396R where it states that an amount included in an award or settlement which is stated to be interest will be taxed as interest for all purposes of the Act. However, on April 26, 1985, a Departmental press release was released stating that the Department would not require prejudgment or pre-settlement interest to be included received in respect of an award for damages to be included in income. On the basis that a retroactive award for workers' compensation is very similar to an award of damages for personal injury or death, the Department has taken a similar position with respect to the interest element of a retroactive workers' compensation award calculated on payments from the date the recipient was entitled to receive such payments as a result of a disabling event to the date the award is made.
You are presently reviewing the case of
XXXXXXXXXX
You have asked whether any portion of the interest included in the second award should be included in XXXXXXXXXX income and for our general comments concerning interest payable on retroactive WCB awards. In particular, you ask whether the interest on the second award is considered prejudgment interest in respect of the second award or post judgment interest in respect of the first award.
The term "prejudgment interest", as used in the context of an award for damages, is used to describe interest payable from the date the damage occurred to the date of the judgment (or settlement, in the case of pre-settlement interest) which requires a defendant to pay a specified sum on account of such damage. Post-judgment interest refers to interest payable from the date of such an award to the date the award is paid.
Based on the information provided by WCB in their letter dated March 2, 1995, it would appear that any interest paid in respect of either award would be considered prejudgment or pre-decision interest. The lump sum payments made to XXXXXXXXXX following each of the awards presumably represents the periodic payments he was entitled to as a result of his injury from XXXXXXXXXX to the date of the decision in question. Thus any interest component included in such a lump sum payment would presumably be calculated on the amount of each periodic payment not made on the date of entitlement from the date of such entitlement to the date of the WCB's decision. Since the lump sum payable as a result of the second decision would obviously not include any amount that was payable as a result of the first decision and the payment was made before such time as post-judgement interest became payable in respect of that decision, then the entire amount of interest paid as a result of that second decision would be considered prejudgment or pre-decision interest. Thus it is our view that such interest can be excluded from XXXXXXXXXX income in the same manner as prejudgment or pre-settlement interest payable in respect of damages for personal injury or death.
Please note that the Department's position in respect of prejudgment or pre-settlement interest paid in respect of an award for damages for wrongful dismissal is currently under review. It is not known at this time whether this review will impact on other forms of prejudgment or pre-settlement interest.
B.W. Dath
Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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