4 March 1985 Income Tax Severed Letter A-0992 - [850304]

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.

Revenue Canada Revenu Canada Taxation Impôt

Head Office Bureau principal

Your file Votre reference Our file Notre reference

M.E. Bartley (613) 995-0051 A-0992

March 4, 1985.

We reply to your letter of January 15 regarding paragraphs 81(1)(g.1), (g.2) and (g.3) of the Income Tax Act in a hypothetical fact situation.

For the purpose of illustrating a typical arrangement you have assumed the following facts:

(a) the taxpayer was the plaintiff in an action for damages in respect of physical and mental injuries suffered by him in an accident while he was an infant;

(b) in 1980 he was awarded general damages of $120,000 and pre-judgment interest of $17,000. As he was not then of majority the amounts were paid into Court to his credit; and

(c) on attaining 18 years of age in 1985, the taxpayer wishes the amount that was paid into Court plus accrued interest thereon (a total of $200,000) to be paid to him for investment in term deposits, guaranteed investment certificates, shares, etc.

In our opinion this is an arrangement described in paragraph 81(g.3) of the Act. That is, an amount will be paid to the taxpayer in the year by a person described in subparagraph 81(1)(g.1)(iii) of the Act "... as, an account or in lieu of payment of or in satisfaction of, interest on ..." property (and interest thereon) described in paragraph 81(l)(g.l). Further the conditions in subparagraphs 81(1)(g.3)(iii) and (iv) are satisfied. As a consequence it is our opinion that the payment of $200,000 will be received by the taxpayer tax-free.

It may be that in your hypothetical case income has accumulated for the benefit of the taxpayer during the time the property was held in the Court. If it has, it is our view that paragraphs 81(1)(g.1) and (g.2) of the Act would have resulted in that income not being taxable to the taxpayer. In fact we suspect that the property has been simply held for the taxpayer's benefit and at the time of payment to him interest will be calculated at a prescribed rate for the entire period and the initial property and the accrued interest on it will be paid to him; we see this as the arrangement contemplated by paragraph 81(1)(g.3) of the Act.

Yours truly,

for Director Non-Corporate Rulings Division

81(g.1), (g.2), (g.3)