Settlement funds received by a law firm from the defendant in a class action suit areheld in a settlement trust, to be applied solely for compensating class members after approval of the terms of the settlement by final Court order. In the meantime, a T5 slip is issued annually to the “law firm in trust” respecting interest earned on these funds. In finding that such interest is not exempt from tax under s. 149(1)(w), CRA stated:
[T]he words of paragraph 149(1)(w) require that a trust be set up according to or pursuant to a specific law rather than pursuant to a court decision facilitating the administration of the law. There is no law in this case specifically requiring a trust to be established to provide funds out of which to compensate persons for claims against the owner of a business. Furthermore the law must identify the particular business and as such paragraph 149(1)(w) is not intended to shelter from taxation all income that may arise from funds required to be held in trust by court order.