29 September 1993 Internal T.I. 9321057 F - Treatment of No-fault Insurance Benefits

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.

Winnipeg Taxation Centre Business and General R.W. Corrigall Division Director

Income Tax Treatment of Payments and Benefits Under Manitoba Government Bill 37

This is in reply to your memorandum of July 22, 1993 in which you requested that we review the relevant provisions of Bill 37 (the Bill) recently introduced by the Manitoba Government creating a no-fault system of automobile insurance.

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To summarize briefly, the system created by this new legislation would see the IRI payment computation based on the recipients level of employment income at the time of the accident and the payment issued on a bi-weekly basis. The lump sum death benefit, as described in Division 3 of the Bill, is computed on the same basis as the IRI entitlement except that it is factored by the victim's age at the time of the accident in order to arrive at the beneficiary's lump sum entitlement. Once the lump-sum amount is determined, the eligible recipient has the option, by virtue of section 124 of the Bill, by application, to receive the amounts on a periodic basis.

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In your memorandum you make reference to the comments made in paragraph 2 of IT-365R2 "Damages, Settlements and Similar Receipts" which sets out the Department's position with respect to the treatment of amounts received as damages resulting from personal injury or death. The only question then is whether the special and general damages described in that paragraph also include the types of damages for which compensation is being awarded under the provisions of Bill 37.

It is our view that the IRI payment is an amount of special damages in respect of accrued and future loss of earnings and/or general damages resulting from the loss of earning capacity. Amounts received as a lump sum death benefit would be viewed as general damages for the loss of financial support caused by the death of the supporting individual. As such, these amounts are not required to be included in the income of the recipient.

However, where the lump sum death benefit entitlement is paid out as periodic instalment payments, it is our view that such payments would be included in the recipient's income as annuity payments under paragraph 56(1)(d) of the Income Tax Act (the Act). The definition of "annuity" in subsection 248(1) of the Act "includes an amount payable on a periodic basis whether payable at intervals longer or shorter than a year and whether payable under a contract, will or trust or otherwise". A deduction for the capital element of each payment would be available to the extent permitted under paragraph 60(a) of the Act.

We trust our comments will provide the confirmation being sought by XXXXXXXXXX

B.W. Dath DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.     Lee Workman Section 41