28 March 2000 Ruling 2000-0014403 - PERSONAL INJURY DAMAGES

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:

The tax treatment of compensation to be received by an individual (the "Individual"), in respect of damages.

Position TAKEN:

General comments provided.

Reasons FOR POSITION TAKEN:

Question of fact, and insufficient information provided to give a definite answer.

XXXXXXXXXX 2000-001440
M. Azzi
Attention: XXXXXXXXXX

March 28, 2000

Dear Madam:

Re: Compensation for Damages -XXXXXXXXXX

This is in reply to your letter of March 9, 2000, wherein you requested an advance income tax ruling on the tax treatment of compensation to be received by the above-noted individual (the "Individual"), in respect of damages.

You indicate that the Individual was XXXXXXXXXX, and, as result, has suffered many forms of physical, psychological harms and various types of financial losses. The Individual claims actionable legal wrongs, and XXXXXXXXXX has offered the Individual $XXXXXXXXXX as general compensatory damages. You indicate that the purpose of this settlement is to compensate the Individual for harms suffered and to provide for future care.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is 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. As discussed on March 20, 2000 (Wilson/XXXXXXXXXX), we are not in position to issue an advance income tax ruling in reply to your request, as we have not been provided with sufficient facts and any supporting documentation with respect to the above-described circumstances, as well as various other information required in the information circular. However, as agreed, we can offer the following general comments, and your deposit will be returned to you under separate cover.

Generally, compensation received by an individual, from the individual's employer or former employer, on account of damages is either employment income, a retiring allowance or non-taxable damages. Such a determination is a question of fact which requires a review of all relevant facts and documentation of each particular case, including the statement of claims and the proposed settlement agreement or court order.

As indicated in paragraph 2 of Interpretation Bulletin IT-365R2 (copy enclosed), all amounts received by a taxpayer that qualify as special or general damages for personal injury are excluded from income regardless of the fact that the amount of such damages may have been determined with reference to the loss of earnings of the taxpayer in respect of whom the damages were awarded. However, an amount which can reasonably be considered to be income from employment rather than an award of damages is not excluded from income. Similarly, an amount which is in respect of a loss of an office or employment and, as such, qualifies as retiring allowance, is not excluded from income, regardless of whether or not the amount is received as payment of damages.

We trust that these comments will be of assistance.

Yours truly,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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