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: Whether payments from the XXXXXXXXXX government to XXXXXXXXXX victims are taxable.
Position: No. The payments in this case are personal injury damages.
Reasons: The facts show that the payments in question are as a result of an action in personal injury damages. The Canada Revenue Agency's general position on the taxable status of a personal injury settlement is discussed in Interpretation Bulletin IT-365R2, Damages, Settlements and Similar Receipts. As indicated in paragraph 2 of IT-365R2, amounts received by a taxpayer as special or general damages for personal injury are excluded from income and, as a result, are not subject to income tax.
XXXXXXXXXX
2013-051436
Andrew Deak
613-957-2130
March 28, 2014
Dear XXXXXXXXXX:
Re: Tax Treatment of XXXXXXXXXX Payments from the XXXXXXXXXX Government
We are writing in response to your letter dated December 3, 2013, in which you requested our views as to whether certain payments made by the XXXXXXXXXX are taxable under the Income Tax Act (the "Act").
Your letter indicated you were among a group of individuals in XXXXXXXXXX who suffered XXXXXXXXXX. The Foundation paid out a lump sum and set up life-time payments to XXXXXXXXXX victims XXXXXXXXXX. Both the XXXXXXXXXX as well as the company that XXXXXXXXXX contributed funds to the Foundation. According to the law that established the Foundation, the XXXXXXXXXX is not taxable in XXXXXXXXXX. Further, the payments in question cannot offset other benefits received from the XXXXXXXXXX. As stated in your letter and in a letter from the XXXXXXXXXX, the XXXXXXXXXX is a statutory entitlement that was formed out of a claim of damages.
On this basis, you have asked us to confirm whether such payments would be taxable in the hands of a Canadian resident.
Our Comments
This technical interpretation provides general comments to assist you in determining the income tax treatment of your particular fact situation. The income tax treatment of specific transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted as set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
We understand that the payments made by the XXXXXXXXXX serve as compensation for injury caused by XXXXXXXXXX. The amounts are adjusted according to the assessment of an independent medical committee. Thus, it is our view that the payments from the XXXXXXXXXX are amounts received by a taxpayer as general damages for personal injury. The Canada Revenue Agency's general position on the taxable status of a personal injury settlement is discussed in Interpretation Bulletin IT-365R2, Damages, Settlements and Similar Receipts. As indicated in paragraph 2 of IT-365R2, amounts received by a taxpayer as special or general damages for personal injury are excluded from income and, as a result, are not subject to income tax under the Act. Further, similar compensation arrangements set up in Canada were not taxable under the Act.
We trust our comments will be of assistance.
Yours truly,
Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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