4 November 1999 External T.I. 9925605 - LTDP - LUMP SUM SETTLEMENT

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 a lump-sum amount in settlement of an ex-employee's long-term disability benefits is taxable.

Position: Yes.

Reasons: It seems clear that, while the taxpayer's settlement for LTDP benefits under her policy includes a reference to claims for future medical costs, travel, legal costs, and therapy, there is no reason to assume that the insurer would settle for anything other than its obligations under the LTDP policy. Thus, since it is an employer-paid plan, the amount is taxable under paragraph 6(1)(f).

XXXXXXXXXX 	J. Gibbons
		5-992560
November 4, 1999

Dear XXXXXXXXXX:

We are responding to your letter of September 22, 1999, in which you requested additional clarification concerning the taxability of a lump-sum settlement from your ex-employer's long-term disability plan (LTDP). Our reply is based on a review of the settlement agreement, along with the LTDP information booklet which you recently provided to us.

As stated in our reply to you on September 21, we cannot confirm the tax implications of particular transactions unless 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. Nonetheless, we hope that these additional comments will be helpful in clarifying your situation.

In our previous letter to you, we indicated that the amounts received by you which are related to your loss of past and future earnings are benefits from your long-term disability plan and are taxable under paragraph 6(1)(f). After reviewing the details of your LTDP policy (Policy XXXXXXXXXX), as described in the employee information booklet, and the minutes of settlement, which were provided to us earlier, we are now satisfied that all amounts received by you are taxable pursuant to paragraph 6(1)(f). It seems clear that, while the settlement for LTDP benefits under Policy XXXXXXXXXX includes a reference to claims for future medical costs, travel, legal costs, and therapy, there is no reason to assume that the insurer would settle for anything other than its obligations under the LTDP policy. Furthermore, the minutes of settlement refer to the "all inclusive sum of $XXXXXXXXXX". This amount is "inclusive of all claims for damages, benefits, interest, costs, and disbursements".

We trust that these comments will be of assistance.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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