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: Whether a lump sum payment from and employer's long term disability plan is taxable or accorded the treatment in IT-365 R2 re damages
Position: Few details provided. General comments re IT-428 that payments our of a LTDP is taxable
Reasons: This is an employer sourced plan specifically covered by 6(1)(f) which is likely a lump sum for amounts paid periodically.
XXXXXXXXXX John Oulton
1999-000326
July 29, 1999
Dear XXXXXXXXXX:
This is in response to your letter of July 20, 1999, in which you outlined the terms of a settlement agreement that has been reached between you and XXXXXXXXXX.
You advised that since your motor vehicle accident in XXXXXXXXXX, until the present, you have not been able to reach a settlement with XXXXXXXXXX under the long-term disability plan (LTDP) that it has with your employer. You indicated that you have a permanent physical disability and have been unable to return to your employment.
You state that your insurance claim was mediated on XXXXXXXXXX, where a lump sum payment was to be paid to you by XXXXXXXXXX as follows:
- Portion of your long term disability accident benefit payments
- Legal fees paid for legal counsel and other legal disbursements
- Special damages
- General damages
- Punitive damages
- Re-training and re-education fees
You have indicated that XXXXXXXXXX intends to include the entire lump sum payment on a T4A slip. You are in disagreement and have been told by local Revenue Canada officials that the entire amount should be accorded the treatment outlined in paragraphs 2(a) and (b) of interpretation bulletin IT-365R2, Damages, Settlement and Similar Receipts, dated May 8, 1987, especially where the majority of the amounts relate to damages as outlined above. XXXXXXXXXX will need a letter from Revenue Canada instructing them not to place the lump sum on a T4A, if it in fact is found to be non-taxable.
Our comments
Based on the limited information provided, it is our general view that the comments in IT-365R2 do not apply to the proposed lump sum payment pursuant to your employer’s LTDP. This is because there are specific rules in the Income Tax Act governing the tax treatment of the proposed payments to be made to you as an employee under the terms of a LTDP. Under paragraph 6(1)(f) of the Act, the total of all amounts payable on a periodic basis that are received by a taxpayer in the year, are taxable as employment income. This could include certain lump sum payments as well. This area of the law is explained in IT-428, Wage Loss Replacement Plans.
In order for us to consider the matter further, it would be necessary for you to provide us with the documentation relating to the proposed lump sum payment to you, including the proceedings in the court in XXXXXXXXXX along with a copy of the LTDP.
We trust that the foregoing comments will explain the tax treatment.
Sincerely,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
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