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: Whether certain periodic amounts that a Canadian resident receives from TAD with respect to automobile accident in the Australia are taxable.
Position: General comments were provided.
Reasons: Completed transaction - need specific information to make a determination.
XXXXXXXXXX 2000-001910
Attention: XXXXXXXXXX
December 12, 2000
Dear Sir\Madam:
Re: Damages - Personal Injury or Death
This is in reply to your facsimile letter of April 5, 2000, concerning the treatment under the Income Tax Act (the "Act") of monthly compensation benefits received by a taxpayer as a result of the accidental death of the taxpayer's spouse.
In your letter you indicate that your client became a widow with three dependent children as a result of her husband's fatal automobile accident in Australia. At the time of the accident your client and her spouse were residents of Australia. You advise that your client receives monthly compensation benefits from the Australian Traffic Accident Commission ("TAC") as a replacement of her deceased spouse's employment income. You indicate in your letter that TAC benefits are taxable in Australia and are subject to withholding tax. You ask whether these monthly TAC benefits are subject to income tax under the Act if they are paid to a Canadian resident.
The situation outlined in your letter involves a completed transaction involving a specific taxpayer. The determination of the income tax consequences of a completed transaction involving a specific taxpayer is the sole responsibility of the taxpayer's local tax services office. In order to make such a determination it will be necessary to review all the relevant facts and supporting documentation. Notwithstanding, we are prepared to provide you with the following general comments.
Your concern appears to relate to damages received by a taxpayer in respect of personal injury or death. The Canada Customs and Revenue Agency's general views on the taxation of such amounts are set out in paragraphs 1 to 7 of Interpretation Bulletin IT-365R2, Damages, Settlements, and Similar Receipts ("IT-365R2"), a copy of which can be viewed on our web site at www.ccra-adrc.gc.ca. Generally, the receipt of a lump sum award for damages for personal injury or death, as indicated in paragraph 2 of IT-365R2, is not considered to be taxable 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. In addition, as indicated in paragraph 3 of IT-365R2, where such an award is decreed to be payable to a claimant in periodic amounts (i.e., the claimant does not otherwise use the proceeds from a lump-sum award to purchase an annuity contract) we do not generally consider such payments to be annuity payments for the purpose of the Act. In these situations, such periodic payments are considered to be non-taxable in the hands of the claimant.
Consistent with the above comments, where an award of damages is payable in periodic amounts to a claimant (i.e., a lump sum award is not involved in relation to the periodic instalments) under a structured settlement arrangement between the claimant and a casualty insurer, as described in paragraph 5 of IT-365R2, the periodic payments are also considered to be non-taxable. On the other hand, where a claimant can be regarded as having become factually entitled to a lump sum in respect of a damage claim and the amount is used to acquire an annuity contract under which the claimant will receive periodic payments, the resulting payments received by the claimant will generally be taxable to the claimant under paragraph 56(1)(d) of the Act as annuity payments and a deduction in respect of the capital element may be available under paragraph 60(1)(a) of the Act.
As noted above, the determination of the proper Canadian income tax consequences of your particular situation remains a question of fact that can only be determined once all the relevant facts are known. Based on the limited amount of information contained in your letter it appears that TAC is a mandatory no-fault automobile accident insurance program run by the Australian government. As noted above, except for payments which are in respect of post-judgment interest (see paragraph 4 of IT-365R2), generally amounts paid for damages as a result of personal injury or death under a mandatory automobile insurance plan would not be taxable under the Act.
If the monthly TAC benefits are ultimately determined to not be taxable in Canada then it remains to be determined whether Australia's right to tax or withhold Australian income tax from such benefits can be reduced or eliminated under the Canada-Australia Income Tax Convention (the "Treaty") (i.e., see Articles 15 and 18 of the Treaty). Any questions on Australia's right to tax TAC benefits in such a situation under the Treaty should be directed to the Australian tax authority since this will likely first require a determination of the domestic taxation of such amounts under Australian law.
Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2000
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2000