16 August 2006 Internal T.I. 2006-0199251I7 - Indian residential school payments

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: Are former students of Indian residential Schools taxable on payments received as:

1) common experience payment pursuant to proposed Settlement Agreement
2) payment pursuant to the Independent Assessment Process under the proposed Settlement Agreement
3) damages received pursuant to private litigation

Position: No

Reasons: Payments under (1) and (2) have been considered and determined to be non-taxable. Damages received pursuant to private litigation would be treated as outlined in IT-365R2

                                                      August 16, 2006

      VANCOUVER TAX SERVICES OFFICE             HEADQUARTERS
                                                      Income Tax Rulings
      Attention:  Kevin Diablo                        Directorate
                                                      Renée Shields
(613) 948-5273

                                                      2006-019925

Indian Residential School Payments

This is in response to your electronic correspondence of August 2, 2006 regarding the taxability of payments received by status Indians in respect of experiences at the Indian Residential Schools.

As you noted in your email, the class action litigation on behalf of former students of the Indian Residential Schools has been the subject of a settlement process. An Agreement in Principle has been established. Pursuant to the Agreement in Principle, an individual might be entitled to a "Common Experience Payment" and/or or an "Independent Assessment Process payment". The Canada Revenue Agency has concluded that the payments made to former students of Indian Residential Schools under the foregoing categories as described in the Agreement in Principle will not be taxable under the Income Tax Act.

You have also asked about the taxability of damages in the event that an individual were to pursue legal action outside of the Government's above-described settlement framework. It is our view that if, pursuant to private litigation, an individual received damages, the damages would be treated in the manner outlined in Interpretation Bulletin IT-365R2, "Damages, Settlements and Similar Receipts". Although the exact nature of any such damages could only be determined following the resolution of a particular action, in general, amounts received in respect of personal injury are non-taxable receipts.

We trust that these comments will be of assistance.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

John Oulton, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch