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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Whether interest with respect to a settlement or an award of salary, wages and other remuneration owing to a taxpayer by his former employer is considered pre-judgement interest which may be non-taxable.
Position: No.
Reasons: Only pre-judgement interest that relates to an award for personal injury or death is considered non-taxable.
XXXXXXXXXX 2002-017629
Randy Hewlett, B.Comm.
February 3, 2003
Dear XXXXXXXXXX:
Re: Technical Interpretation Request: Pre-Judgment Interest
We are writing in response to your telephone enquiry of November 19, 2002 to the Toronto Centre Tax Services Office, regarding the above-noted subject.
It is apparent from your inquiry that you received a lump-sum settlement or award from your former employer for salary, wages and other remuneration owing to you at the cessation of your employment. The total amount received included interest calculated at 4% of the total salary, wages and other remuneration owing. You inquire whether the interest is "pre-judgement interest" that may be considered non-taxable.
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 income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following comments.
Interest income is generally taxable pursuant to paragraph 12(1)(c) of the Income Tax Act (the Act). The only exception is for pre-judgement interest related to damages received for personal injury or death, as explained in Interpretation Bulletin IT-365R2 Damages, Settlements and Similar Receipts. There is no indication that the amount of interest you received is related to personal damages, with the result that it must be included in your income in the year in which it is received. Further, the lump-sum settlement or award you received represents salary, wages and other remuneration owing to you at the cessation of your employment and must be included in your employment income in the year received pursuant to subsection 5(1) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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