GST/HST Rulings and
Interpretations Directorate
Place Vanier, Tower C, 9th Floor
25 McArthur Road
Vanier, Ontario
XXXXX K1A 0L5
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XXXXX
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Case: HQR0000229
XXXXX File: 11710-1
XXXXX November 12, 1997
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Subject:
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Tax Status of Out-of-Court Settlement, XXXXX
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This memorandum is in response to your letter of December 22, 1994, requesting our comments on the above noted subject. We understand that an interpretation to XXXXX was issued in a letter dated November 23, 1995. The client was advised that the settlement amount received was consideration for a taxable supply and subject to the Goods and Services Tax.
We understand that copies of the relevant agreements were not made available for our review. Without all the necessary information, our comments are restricted to a general discussion of the Department's current position in this area.
In most cases involving out-of-court settlements, the party receiving the settlement agrees to provide a release in exchange for a settlement amount. The general view of the Department is that the provision of a release constitutes a supply of property. The supply would be subject to tax under Part IX of the Excise Tax Act if it is also a taxable supply. In order for the provision of a release to be a taxable supply, the release must be supplied in the course of the supplier's commercial activities. Further, the event which gave rise to the payment of the settlement amount must have occurred within the context of an agreement for the making of a supply between the two parties.
I trust these comments are of assistance to you. Similar cases should continue to be referred to headquarters as policy is still being developed in this area. If you have any questions or require further information on this matter, please contact me at (613) 952-8806.
Yours truly,
Jane Mah, CA
Policy Unit
General Operations and Border Issues Division
GST/HST Rulings and Interpretations Directorate
Legislative References: Excise Tax Act, ss 123(1), ss 165(1)
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