29 May 1998 External T.I. 9812025 - SETTLEMENT UNDER WAGE-LOSS REPLACEMENT.

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 the Department has reconsidered its position on lump-sum amounts paid to a taxpayer n settlement of a lawsuit to recover long-term disability benefits as result of the Court's decision in Landry v. The Queen, 98 DTC.

Position: No. Our position remains that the amounts are taxable under paragraphs 6(1)(a) or 6(1)(f).

Reasons: In our view, the decision in Cook v. The Queen, 98 DTC 1416, is the better view, i.e., that a lump sum settlement of disability benefits is founded in the taxpayer's rights under an employment contract, and is therefore to be included in income under paragraph 6(1)(a). In additon, there is an argument in some cases (specifically rejected in Landry based on the facts) that a portion or all of a lump-sum settlement of disability benefits represents amounts due to an employee under his or her plan and is thus taxable under paragraph 6(1)(f) of the Act.

XXXXXXXXXX 	J. Gibbons
		5-981202
Attention:  XXXXXXXXXX 

May 29, 1998

Dear XXXXXXXXXX:

We are replying to your letter of May 5, 1998, in which you inquire concerning our position on the taxation of lump-sum payments received in settlement of claims relating to disputes about coverage under wage-loss replacement plans. More specifically, you ask whether we will follow the reasoning in Jacqueline Landry v. Her Majesty the Queen, 98 DTC 1416, that is, that such lump-sums are not income to the recipient.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

In Landry, the court ruled that paragraph 6(1)(a) would not apply to the lump-sum settlement of disability benefits, since disability benefits are specifically covered in paragraph 6(1)(f) of the Act. In our opinion, the decision in Cook v. The Queen, 95 DTC 853, is the better view, i.e., that a lump sum payment in settlement of disability benefits is founded in the taxpayer's rights under an employment contract, and is therefore to be included income under paragraph 6(1)(a) of the Act. In addition, there is an argument in some cases (specifically rejected in Landry based on the facts) that a portion or all of a lump-sum settlement of disability benefits represents amounts due to an employee under his or her plan and is thus taxable under paragraph 6(1)(f) of the Act. Based on the foregoing, our position, as discussed in document #7-971547, remains the same.

We trust that these comments will be of assistance.

Yours truly,

P. Spice
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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