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.
Principal Issues: Is there any provision for relief under the Income Tax Act for the taxation of amounts received by the taxpayer in 2002.
Position: No.
Reasons: Section 120.31 calculates the tax which is the total of the additional taxes that would be triggered for each relevant preceding year if the portion of the lump-sum payment that relates to that preceding year were added to the individual's taxable income for that year. The lump-sum payment in this scenario relates to subsequent years.
2003-003915
XXXXXXXXXX Luisa A. Majerus, C.A.
(613) 946-3558
May 10, 2004
Dear XXXXXXXXXX:
Re: Taxation of Lump-sum Settlement in lieu of Pension
This is in reply to your facsimile of September 15, 2003 requesting our interpretation of the taxation of the lump-sum settlement received by you from the liquidator of your former employer. You have also requested our views on the availability and application of relief provisions under the Income Tax Act (the "Act").
You have advised us that former employees of XXXXXXXXXX ("the employer") lost their right to benefits in an unfunded supplementary pension plan when the company was liquidated in XXXXXXXXXX. The court ruled that they were general creditors and entitled to some payment. The liquidator made lump sum settlements to the former employees during XXXXXXXXXX. In XXXXXXXXXX, as one of the former employees of the employer, you received a lump-sum payment in the amount of $XXXXXXXXXX which was reported on a T4A slip as "Other Income" and included in your income for your XXXXXXXXXX taxation year.
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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.
Generally, an amount is included in income in the year it is received. While sections 110.2 and 120.31 of the Act provide for averaging of lump sum payments received in certain circumstances, based on the information provided these sections do not appear to apply in your situation.
In addition, legal expenses that you incurred are only deductible to the extent that they are described in paragraph 60(o.1) of the Act.
We trust these comments will be helpful.
Yours truly,
F. Lee Workman
Financial Institutions Team
Financial Industries Division
Income Tax Rulings Directorate
Policy & Planning Branch
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