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:
An insurance act of New Brunswick (the “Insurance Act)”, which sets out legislation concerning automobile insurance, refers to a loss of income (net of income taxes) that could have been earned between the date of judgement and the date of the vehicle accident minus certain amounts (net of income taxes) that might be received (e.g., amounts received under an income continuation plan). One issue is whether a payment (or payments) representing damages in respect of such a loss of income is non-taxable. A second issue is whether the description of the damages is ultra vires to the extent that it impinges on federal laws relation to taxation pursuant to subsection 91(3) of the Constitution Act.
Position:
1. (specific facts and documentation of an actual situation not available) - On the basis that payments are damages in respect of personal injury, the payments (or payments) would generally be non-taxable.
2. The description does not encroach upon Parliament’s jurisdiction dealing with taxation.
Reasons:
1. The position is consistent with comments in paragraph 1 to 5 of IT-365R2.
2. The description is simply a means of determining the amount of damages arising out of an accident.
XXXXXXXXXX 981135
M. Eisner
July 2, 1998
Dear XXXXXXXXXX:
Re: Damages - Personal Injury
This is in reply to your letter received on May 11, 1998, concerning subsection 265.3(1) of the Insurance Act, R.N.B.B. 1973, c.I-12, (the “Insurance Act”) of New Brunswick in relation to the above subject.
You indicated that the Insurance Act has recently been amended by adding subsection 265.3(1). Under this provision, a plaintiff is entitled to recover as damages in respect of a loss of income related to a period of time between the date of the vehicle accident and the date of the judgement, the income the plaintiff would have received during that time period less any income taxes. However, damages described in subsection 265.3(1) of the Insurance Act, are to be reduced by certain amounts received (e.g., an income continuation plan) during the relevant time period (net of income taxes, if any) pursuant to section 265.4 of the Insurance Act.
You have asked us whether payments received as a result of subsection 265.3(1) of the Insurance Act would be non-taxable in the hands of the plaintiff. In addition, you have asked for our comments on whether subsection 265.3(1) of the Insurance Act may be ultra vires to the extent that it impinges on federal laws relating to taxation pursuant to section 91(3) of the Constitution Act, 1867.
The Department’s position on amounts received as damages in respect of personal injury is set out in paragraphs 1 to 5 of Interpretation Bulletin IT-365R2 ”Damages, Settlement, and Similar Receipts” which has been enclosed for your convenience. In order to determine whether payments in an actual situation are non-taxable, it necessary to review the relevant facts and documentation. However, we are providing the following general comments on this issue which do not constitute an advance income tax ruling and, accordingly, are not binding on the Department with respect to any particular transaction.
It is our general view that a payment (or payments) received as damages in respect of personal injury by virtue of subsection 265.3(1) of the Insurance Act would be non-taxable. As a further comment, we note that paragraph 2 of IT-365R2 states that “amounts received by a taxpayer or the taxpayer’s dependant that qualify as special or general damages for personal injury or death will be excluded from income regardless of the fact that the amount of such damages may have been determined with reference to loss of earnings of the taxpayer in respect of whom the damages were awarded.”
In the case of the second concern, it is our opinion that the provincial legislature did not effectively usurp a federal power merely by choosing a convenient description. Since the purpose of subsection 265.3(1) of the Insurance Act is to establish a means of determining the amount of damages arising out of an accident, we believe that there is no reason for finding that the enactment of that provision encroaches on Parliament’s jurisdiction dealing with taxation. Our legal advisors are in agreement with these comments.
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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