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.
June 14, 1993
| Toronto District Office |
Head Office |
| General Enquiries Division |
Financial Industries Group |
| Mary Pat Baldwin |
(613) 957-8953 |
Attention: Patricia Hicks
Subsections 204.1(1) and 204.2(1) of the Income Tax Act
This is in reply to your Memorandum of May 13, 1993 requesting an advance income tax ruling on an enquiry received by your office on May 10, 1993. The enquiry is from XXXXXXXXXX and she is requesting a ruling on the tax treatment of an out of court settlement of legal action commenced against XXXXXXXXXX for loss of investment damages. The situation described in the enquiry is an actual fact situation and as noted in Information Circular 70-6R2, we do not express opinions on specific proposed transactions other than as a reply to an advance income tax ruling request. The ruling request must be submitted to the Rulings Directorate accompanied by all supporting documents. As a consequence thereof, the response to the enquiry should be provided by your office. However, we have reviewed the letter and have the following comments.
Where an amount is paid directly by the solicitor to a trustee of the RRSP solely as a result of the return of monies derived from a settlement of damages or court order in respect of the legal action to recover damages for breach of contract, it is our view that the payment would not be included in the planholder's income for the taxation year. Normally, it is not our practice to apply the provisions of subsection 204.2(1) of the Income Tax Act to over-contributions where there is a direct payment by the solicitor to a trustee of the RRSP and no amount is included in the planholder's income.
In her letter, the taxpayer had three questions which are:
1) Can she roll the lump sum of $XXXXXXXXXX back into an RRSP fund immediately?
Provided she meets the criteria noted above, it is our opinion that she would be eligible to transfer the lump sum of $XXXXXXXXXX back into a RRSP as provided for in ATR-24.
2) Can she also add another $XXXXXXXXXX to the RRSP during this year to make up the original investment?
No, she would not able to add another $XXXXXXXXXX to her RRSP during the year to restore the investment to it's original cost without the amount being considered a contribution to an RRSP.
3) Is there any way she can claim all or part of the legal expenses?
No, the legal expenses incurred in this particular type of legal action would not be deductible in computing taxable income.
We trust that the above comments will be of assistance to you.
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1993
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© Sa Majesté la Reine du Chef du Canada, 1993
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