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:
An accountant has attached a copy of the Landry decision (98 DTC 1416) and requested clarification of the tax treatment of a lump-sum settlement of a long term disability claim, as opposed to periodic payments over time, under 6(1)(a) and 6(1)(f).
Position TAKEN:
Our position remains that amounts are taxable under paragraphs 6(1)(a) or 6(1)(f).
Reasons FOR POSITION TAKEN:
Position taken in other files.
XXXXXXXXXX 5-990122
D. Miller
March 1, 1999
Dear Sir:
Re: Lump-Sum Settlement of Long Term Disability Claim
This is in reply to your letter of January 18, 1999, regarding the tax treatment of a lump-sum settlement of long term disability under paragraphs 6(1)(a) and (f) of the Income Tax Act (the “Act”). More specifically, you ask whether we will follow the reasoning in Jacqueline Landry v. Her Majesty the Queen, 98 DTC 1416, that is, that such lump-sums are not income to the recipient.
The situation described in your letter appears to involve actual completed transactions with identifiable taxpayers. Written confirmation of the tax implications inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3, dated December 30, 1996. Where the particular transactions are completed, as in this case, the enquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments.
In Landry, the Court ruled that paragraph 6(1)(a) would not apply to the lump-sum settlement of disability benefits, since disability benefits are specifically covered in paragraph 6(1)(f) of the Act. In our opinion, the decision in Julie Ann Cook v The Queen, 95 DTC 853, is the better view, i.e., that a lump sum payment in settlement of disability benefits is founded in the taxpayer’s rights under an employment contract, and is therefore to be included in income under paragraph 6(1)(a) of the Act. In addition, there is an argument in some cases (specifically rejected in Landry based on the facts) that a portion or all of a lump-sum settlement of disability benefits may be in lieu of periodic payments due to an employee under his or her plan and is thus taxable under paragraph 6(1)(f) of the Act (see paragraph 11 of Interpretation Bulletin IT-428, Wage Loss Replacement Plans).
The treatment of a lump-sum settlement may vary depending on the facts of each case and a conclusion cannot be reached until there has been a complete examination of all the facts and relevant documentation. We note that you did not provide any details regarding the wage loss replacement plan or whether it was employee or employer funded. You are invited to contact the nearest Tax Services Office (the “TSO”) providing all the relevant facts and documentation. We would be glad to provide assistance to the TSO should they so request.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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