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.
November 17, 1999
Ottawa Tax Services
Client Services HEADQUARTERS
4th Floor, 333 Laurier C. Tremblay
Ottawa, ON K1A 0L9 957-2139
Attention: Y. Besner
992474
Settlement of Personal Injury
This is in reply to your round trip memorandum of September 7, 1999, wherein you ask us whether an amount received by XXXXXXXXXX as a settlement for a work related personal injury or illness suffered by her deceased husband is taxable. The circumstances of the settlement are described in a letter from her daughter, XXXXXXXXXX , and from correspondence she attached. XXXXXXXXXX. The settlement received by XXXXXXXXXX is from the XXXXXXXXXX.
Generally, as indicated in paragraph 2 of IT-365R2, Damages, Settlements and Similar Receipts, amounts received by a taxpayer or the taxpayer's dependent, that qualify as special or general damages for personal injury or death will be excluded from income. However, the amounts received appear to be a distribution from a foreign trust and, accordingly, for Canadian tax purposes, the character of the property (i.e. damages for personal injury) in the trust is lost as the funds pass through the trust and out to the recipient. We have assumed that XXXXXXXXXX is a trust based on Canadian law due to the fact that the word trust is used in the payor's name. Pursuant to subsection 104(13) of the Income Tax Act (the "Act"), a Canadian resident beneficiary of a foreign trust is required to include in income those distributions from the trust that are on account of income; the distribution that are on account of capital are generally not subject to tax. It is a question of fact, however, as to whether a particular distribution from a trust is on account of income or capital. Since this involves a U.S. trust, U.S. federal and state laws, as far as they are ascertainable, would have to be reviewed to determine the nature and extent of the rights of the beneficiaries under the trust in relation to the income and capital of the trust.
If the distribution from the trust (i.e. the settlement payment) is entirely a capital distribution, as may very well be the case, it is our view that the settlement payment will not be subject to tax in the hands of XXXXXXXXXX. We would suggest that if you are not prepared to accept the distribution from the trust as on account of capital, XXXXXXXXXX should write to Claims Resolution Management Corporation and request confirmation as to whether the distribution from the trust to XXXXXXXXXX are on account of capital or income.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Custom and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.
Jim Wilson
Manager
Business, Property and Employment Section
Business and Publications Division
Policy and Legislation Branch
Income Tax Rulings and
Interpretations Directorate
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© Her Majesty the Queen in Right of Canada, 1999
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© Sa Majesté la Reine du Chef du Canada, 1999
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