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 a lump-sum payment in lieu of future monthly disability payments from an insurance company taxable?
Position: No
Reasons: Paragraph 6(1)(f) taxes long term disability payments received on a periodic basis. According to jurisprudence, lump-sum amounts paid for future benefits are not taxable under section 6.
XXXXXXXXXX
2012-047191
Bonnie Ruttan-Morillo
February 18, 2013
Dear XXXXXXXXXX,
This is in response to your letter of December 5, 2012, in which you asked about the taxation of a lump-sum payment offered to you by an insurance company. You advised that you have been receiving taxable monthly long term disability benefits and the insurance company has offered you a lump-sum amount in lieu of future monthly benefits ("settlement amount").
Long term disability benefits received on a periodic basis from an employer funded disability insurance plan are included in an individual's income under paragraph 6(1)(f) of the Income Tax Act ("Act"). The monthly payments you are currently receiving are taxable under that paragraph. However, it is our view that the settlement amount would not be taxable under that paragraph or any other provision of the Act.
We trust our comments will be of assistance to you.
Yours truly,
Nerill Thomas-Wilkinson, CPA, CA
Manager
For Director
Business and Employment Division
Income Tax Rulings Directorate
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