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.
Please note that the following document, although believed
to be correct at the time of issue, may not represent the
current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
damages awards - treatment of pre and post judgment interest
and withholding requirements thereon
Position TAKEN:
pre-judgment interest not included in income. Post judgment
interest included under 12(1)(c). Withholding req'd (see
212(1)(b), 215(1) as modified by Canada-US Tax treaty and
Reg 202(1)(b))
Reasons FOR POSITION TAKEN:
Reflects position adopted in previous correspondence.
940508
XXXXXXXXXX Sandra Short
Attention: XXXXXXXXXX
April 25, 1994
Dear Sirs:
Re: XXXXXXXXXX
This is in reply to your request for an advance income tax ruling dated February 22, 1994. Information Circular 70-6R2 and the Special Release attached thereto dated September 30, 1992 sets out the guidelines under which an advance income tax ruling may be issued. As explained in paragraph 6 of the Circular, advance rulings are not issued on transactions that are already completed or on series of transactions that are significantly advanced. Your $400 deposit will be returned to you under separate cover. We can, however, provide you with general comments relating to the tax treatment of pre-judgment and post-judgment interest relating to damage awards for personal injury or death.
In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").
It is the Department's position that the interest element of damage awards for personal injury or death which relate to the period prior to the court order (pre-judgment interest) is not included in income. This position was first announced in a press release dated April 26, 1985 (this was subsequent to the publication date of Interpretation Bulletin IT-396R), and related to personal injury or death damages awards received in 1984. This position was subsequently extended to such awards received in 1985 and subsequent taxation years. There is no present intention to require that pre-judgment interest on damage awards relating to personal injury or death be included in income.
With respect to post-judgment interest, it is our opinion that the amounts received should be included in the recipient's income, in the year of receipt, under the statutory authority of paragraph 12(1)(c) of the Act.
Paragraph 202(1)(b) of the Regulations applies to every Canadian resident who pays or credits interest to a non-resident. This provision requires the payer to file forms NR4-NR4A Summary and NR4 Supplementary. The required forms must be filed on or before March 31 of the calendar year following the year of payment. Your correspondence indicates that you are aware of the obligations imposed by paragraph 212(1)(b) and subsection 215(1) of the Act as modified by Article X1 of the Canada-U.S. Income Tax Convention (1980).
We trust our comments will be of assistance to you.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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