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:
XXXXXXXXXX
Thaxpayer claimed damages and in XXXXXXXXXX the claim was settled for $XXXXXXXXXX which he contends, based on the Supreme Court of Canada case, Schwartz vs. The Queen, 96 DTC 6103, is not taxable.
Position:
Insufficient information was provided to determine whether the settlement would be non-taxable.
Reasons:
In the Schwartz case, the Supreme Court found that the settlement was non-taxable because, among other reasons, the agreement to pay the amount was not specific as to whether Mr. Schwartz received the amount for loss of income for future services or for non-taxable damages relating to anxiety, embarrassment and inconvenience. It is a question of fact whether all or a portion of a particular settlement was in respect of non-taxable damages. The Department would generally attempt to determine an apportionment in such cases. In this particular case, we have not been provided the necessary information pertaining to the settlement to make a determination.
XXXXXXXXXX 980460
A. M. Brake
April 29, 1998
Dear XXXXXXXXXX:
Re: Damages for Pre-Employment Breach of Contract
This is in reply to your letter of February 10, 1998 and is further to our recent telephone conversation (Brake/XXXXXXXXXX) relating to the tax treatment of $XXXXXXXXXX, received as damages in respect of a breach of a pre-employment contract, from the XXXXXXXXXX under circumstances which can be described as follows:
XXXXXXXXXX
You contend that your situation merits many similarities to a recent Supreme Court of Canada case, Schwartz vs. The Queen, 96 DTC 6103, wherein the Court determined that a damages settlement in respect of a pre-employment breach of contract was not taxable.
We agree that your situation is very similar to the fact situation considered in the Schwartz case. However, it should be noted that, in the Schwartz case, the Supreme Court found that the settlement was non-taxable because, among other reasons, the agreement to pay the amount was not specific as to whether Mr. Schwartz received the amount for loss of income for future services or for non-taxable damages relating to anxiety, embarrassment and inconvenience. It is a question of fact whether all or a portion of a particular settlement was in respect of non-taxable damages. The Department would generally attempt to determine an apportionment in such cases.
We have not been provided copies of documentation pertaining to the final settlement reached between you and the XXXXXXXXXX. Paragraph XXXXXXXXXX of the Amended Statement of Claim (the "Claim") filed with the Ontario Court (General Division) is not specific as to the nature of the damages sought by the Plaintiffs.
XXXXXXXXXX
We are not aware of what information the XXXXXXXXXX took into consideration in arriving at its settlement and what particular damages the $XXXXXXXXXX settlement was intended to cover. We cannot make definitive comments without having the opportunity to review all the facts. Such a determination requires a review of all the facts and your local Tax Services Office is in a better position to provide you with assistance in this regard.
The foregoing comments represent our general views with respect to the subject matter of your letter. As indicated in paragraph 22 of Information Circular 70-6R3, this is not an advance income tax ruling and is therefore not binding on Revenue Canada.
We trust our comments will be of assistance to you.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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.../cont'd
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