22 April 1985 Income Tax Severed Letter

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.

Revenue Canada Revenu Canada Taxation Impôt

Head Office Bureau principal

Your file Votre reference Our file Notre reference

M.E. Bartley (613) 995-0051

April 22, 1985

Dear: XXXX

This is in reply to your letter of March 8 and is further to ours of March 4.

In our earlier letter we dealt with a payment out of Court to an individual under 21 years of age representing an award for physical or mental injury plus interest thereon. We did not deal with the taxation of income and taxable capital gains thereafter derived by him from the investment of those amounts while still under 21 years of age. In our opinion the result will depend upon whether it was paragraphs 81(1)(g.1) and (g.2) of the Income Tax Act which applied during the period the property was held for him and subsequently paid to him or paragraph 81(1)(g.3) which applied at the time be received the award and interest on it.

In our opinion

(a) if the property was held for the minor in such a manner that the income received for his benefit was non-taxable by paragraph 81(l)(g.1) of the Act, the income which he receives from his investment of the funds will be exempt by paragraph 81(1)(g.1) to the extent that it traces to the award and by paragraph 81(1)(g.2) to the extent that it traces to earlier income; and

(b) if the property which vas held for him was paid to him with interest in such a manner that paragraph 81(1)(g.3) of the Act applied a portion of the income which he receives thereafter will be non- taxable by paragraph 81(1)(g.1) to the extent that it traces to the award and by paragraph 81(1)(g.2) to the extent that it traces to that portion of the income. However we see nothing that shelters the portion of the income that is received by the minor from his investment of the interest which was excluded from income by paragraph 81(1)(g.3) of the Act.

Obviously this is not a problem for the taxpayer who receives the award and interest on it on or after his 21st birthday. The problem arises if the funds are received earlier and since we doubt that this result was intended we shall draw it to the attention of the Department of Finance for consideration.

Yours truly,

for Director Non-Corporate Rulings Division

c.c. Current Amendments Division

81(1)(g.1), (g.2), (g.3)