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:
1) whether the amount paid as damages for financial loss caused by misleading information by contractor hired by pension plan administrator is taxable to member of pension plan.
2) whether interest on settlement from date settlement offer is accepted is taxable to member as interest income when received.
Position:
1) Non-taxable damages;
2) 12(1)(c) interest.
Reasons:
1) amount represents compensation for personal injury caused by negligent act of contractor (or pension plan administrator) and is not taxable;
2) routine - see paragraph 12 of IT-396R.
XXXXXXXXXX 964192
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letters of XXXXXXXXXX, requesting an advance income tax ruling on behalf of the above-named taxpayer, and further to our telephone conversations (XXXXXXXXXX) of XXXXXXXXXX.
FACTS
1. XXXXXXXXXX ("the Plan") is a multi-employer defined benefit pension plan created by provincial statute. It is a registered pension plan under the Income Tax Act (the "Act"), registration number XXXXXXXXXX. Under the terms of the statute the XXXXXXXXXX (the "Trustee") is the trustee of the Plan and is responsible for all aspects of the administration of the Plan. The Trustee is not an agency of the Government of XXXXXXXXXX. The Trustee has the ability to contract for administrative services in respect of the Plan and to charge the costs for such services against the pension fund.
2. The Trustee contracted for the services of the Agency, an agency of the Government of XXXXXXXXXX, agreeing to reimburse the Agency for its expenses. The specified services to be provided by the Agency to the Trustee at the relevant times were as follows:
- record keeping
- calculation of pensions
- calculation of pension estimates
- payment of pensions
- communication to members
3. There are approximately XXXXXXXXXX employers who contribute to the Plan one of which is XXXXXXXXXX (the "Employer").
4. XXXXXXXXXX was an employee of the Employer and a member of the Plan. On or about XXXXXXXXXX, the Agency received an application for retirement from XXXXXXXXXX and the Employer asked the Agency to provide XXXXXXXXXX with an estimate of his pension. There was no contract between the Agency and the Employer or between the Agency and XXXXXXXXXX.
5. On or about XXXXXXXXXX, the Trustee, based on information provided to it by the Agency, advised XXXXXXXXXX that his monthly pension would be $XXXXXXXXXX and a bridge to age 65 of $XXXXXXXXXX.
6. Based on this information XXXXXXXXXX retired from the Employer on or about XXXXXXXXXX. XXXXXXXXXX was XXXXXXXXXX years of age at the time and was not obliged to retire. His decision to retire was based on the estimate provided by the Agency through the Trustee.
7. On or about XXXXXXXXXX, the Trustee, based on information provided to it by the Agency, advised XXXXXXXXXX that the previous estimate was incorrect and his monthly pension would be $XXXXXXXXXX and a bridge to age 65 of $XXXXXXXXXX.
8. XXXXXXXXXX made a claim against the Agency for damages for the financial loss he suffered in the amount of $XXXXXXXXXX plus interest from the date of the offer.
9. XXXXXXXXXX offer was accepted by the Agency on XXXXXXXXXX, (as confirmed in our telephone conversation of XXXXXXXXXX) upon legal advice of counsel for both XXXXXXXXXX and the Agency.
11. The Trustee has agreed, through the contract (see 2 above) to indemnify the Agency against costs which may include the damages that have been agreed to be paid to XXXXXXXXXX.
PROPOSED TRANSACTION
12. On or before XXXXXXXXXX, the Agency will pay damages in the amount of $XXXXXXXXXX (plus interest from XXXXXXXXXX) in settlement of XXXXXXXXXX claim for financial loss resulting from the Agency's provision of inaccurate information.
PURPOSE OF PROPOSED TRANSACTION
13. The Agency is an intermediary between the Plan members and the Trustee. The Agency owes a duty of care which flows from the fact that members must seek information about their interest in the Plan from the Agency, and it is reasonable to expect that the members will rely on that information in making decisions which might be financially detrimental to them if the information is inaccurate. Therefore, the Agency is obligated to provide accurate information and can be held liable for any financial loss resulting from the provision of inaccurate information. In XXXXXXXXXX case, erroneous information was provided to him by the Agency which he relied upon to his detriment and the Agency is prepared to acknowledge for purposes of the settlement that its actions were negligent and it is therefore liable to make good the damages.
14. XXXXXXXXXX mailing address is XXXXXXXXXX and he is served by the XXXXXXXXXX Taxation Services Office and the XXXXXXXXXX Tax Centre.
15. To the best of your knowledge none of the issues involved in this ruling request is
(i) in an earlier return of the taxpayer or a related person,
(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or related person,
(iii) under objection by the taxpayer or a related person,
(iv) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired,
(v) the subject of a ruling previously issued by the Directorate.
RULINGS
Provided the above statement of facts and proposed transaction are accurate and constitute a complete disclosure of all the relevant facts and provided the transaction is completed as proposed, we rule as follows:
A. The amount of $XXXXXXXXXX paid to XXXXXXXXXX will not be considered a superannuation or pension benefit or a retiring allowance will not be required to be included in his income for purposes of the Act.
B. The payment of interest on the amount described in A above will be included in XXXXXXXXXX income when received pursuant to paragraph 12(1)(c) of the Act.
C. The Agency will not be obliged to withhold any income tax on the payment to XXXXXXXXXX of the amounts described in A and B above.
The above advance income tax rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada, and are binding upon Revenue Canada provided the proposed transaction is completed by XXXXXXXXXX.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1996
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© Sa Majesté la Reine du Chef du Canada, 1996
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