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: Whether income from an annuity contract is taxable or exempt under paragraphs 81(1)(g.1) and (g.2) of the Act.
Position: The income is taxable.
Reasons: Paragraphs 81(1)(1)(g.1) and (g.1) of the Act only apply if a minor has suffered personal mental or physical injury. This is not the case with respect to the situation under consideration.
XXXXXXXXXX 980461
M. Eisner
March 18, 1998
Dear XXXXXXXXXX:
Re: Personal Damages and Annuity Contracts - XXXXXXXXXX
This is in reply to your letter of February 18, 1998 concerning whether periodic payments are non-taxable.
In your situation, XXXXXXXXXX (now deceased) purchased an annuity contract from XXXXXXXXXX which had a guarantee period of 25 years and provided for monthly lifetime payments to be made to XXXXXXXXXX (the “Claimant”). You have indicated that the source of the funds for the purchase of the annuity contract originated from a medical malpractice lawsuit between the Claimant and the XXXXXXXXXX. Upon the death of the Claimant, his son (XXXXXXXXXX), who is a minor, became entitled to receive the remaining payments under the annuity contract.
With respect to the annuity contract, XXXXXXXXXX issued a T-5 information slip (1996) to XXXXXXXXXX in trust for XXXXXXXXXX. Upon contacting XXXXXXXXXX, you were provided with information from that insurance company regarding the taxation of the annuity contract in relation to the T-5 information slip. Your are now requesting our views on whether the income in respect of the annuity contract is exempt under paragraph 81(1)(g.1) of the Income Tax Act (the “Act”).
Under paragraph 81(1)(g.1) of the Act, an individual can exclude income derived from certain sources for taxation years during any part of which the individual was under 21 years of age. However, to qualify for the exemption, the income must, during the particular taxation years, be derived from property received by or on behalf of a individual who is under 21 years of age as an award of, or pursuant to an action for, damages in respect of the individual’s physical or mental injury. As this is not the case in the above situation, it is our view that the income in question is not exempt under paragraph 81(1)(g.1) of the Act. Similar comments have been set out in paragraph 6(a) of Interpretation Bulletin IT-365R2 “Damages, Settlement and Similar Receipts” which has been enclosed.
We are not aware of any other provision in the Act which would exempt the income in question.
We trust that 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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