12 July 2004 Internal T.I. 2004-0077981I7 F - Dédommagement-Régime de pension -- translation

Principal Issues: [TaxInterpretations translation] Is the amount paid to a taxpayer as compensation taxable?

Position: No

Reasons: This amount is not an amount received as or in payment of a superannuation or pension benefit within the meaning of subsection 248(1) of the Act. Nor is it a retiring allowance within the meaning of subsection 248(1) or employment income. The amount paid is not a source of income for the purposes of the Act.

		                                  July 12, 2004

Chicoutimi	Tax Services Office               Headquarters 
Client Services  	                            Income Tax Rulings Directorate
		                                   
Attention: Mr. Victor Girard	                Michel Lambert
                                              (613) 957-8953

		                                  2004-007798

Taxation of compensation

This is further to your memorandum of May 14, 2004 in which you asked whether an amount paid to a taxpayer as compensation should be added to the taxpayer's income in the year the amount is received.

For the purpose of this letter, the taxpayer is named as XXXXXXXXXX. His social insurance number is XXXXXXXXXX.

The Facts

1. The taxpayer benefited from a pension transfer agreement between the Commission administrative des régimes de retraite et d'assurance (the RPA) and XXXXXXXXXX, concluded on XXXXXXXXXX.

2. According to the Conseil du trésor du Québec [Quebec Treasury Board], the taxpayer may have been penalized due to a significant delay in signing the agreement with XXXXXXXXXX and was only credited with a portion of his XXXXXXXXXX years of service for the purpose of calculating his RPA pension.

3. The Conseil du trésor du Québec is of the view that the taxpayer should be compensated, without any admission of liability on the part of the Government of Québec.

4. The Conseil du trésor authorized the payment of compensation to the taxpayer in the amount of $XXXXXXXXXX on the condition that the taxpayer first release the Government of Quebec and the RPA from any liability or lawsuit related to the transfer agreement concluded on XXXXXXXXXX. The payment was made from the "Conseil du trésor, Administration et Fonction publique" portfolio's substitute fund.

Question

5. You wish to know if the amount of $XXXXXXXXXX is taxable under the Income Tax Act (the Act).

Our Opinion

6. We are of the view that the amount of $XXXXXXXXXX received by the taxpayer was not taxable under the Act. It is our opinion that this amount was not a source of income for the purposes of the Act.

Access to Information

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. 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, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

We hope that these comments are of assistance.

Manager
Financing and Plans Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch