| 19(1) | File No. 5-8660 |
| S. Short | |
| (613) 957-2134 |
November 21, 1989
Dear Sirs:
Re: Damages in Respect of Personal Injury
This is in reply to your correspondence of September 8, 1989 wherein you queried the taxation of damages paid or received in respect of personal injury. Specifically, you have asked whether an employee who receives a court settlement on damages for personal injury in the amount of a $6,000 lump sum payment and 60 monthly payments of $500 each will be taxed on that amount. Secondly, you have asked whether we would agree with the conclusion that the amounts are not required to be included in income in accordance with paragraph 56(1)(v) of the Income Tax Act nor deductible under paragraph 110(1)(F) of the Act, as the amounts are not paid by a compensation board. Lastly, you have asked whether the employer is entitled to deduct the lump sum payment and the periodic payments in the year of payment or, if not, the tax treatment the employer should give the payments.
The tax treatment of a court settlement in respect of damages can only be determined after a review of all pertinent facts. Likewise, it is a question of fact whether damages paid or received are in respect of personal injury. In order to be deductible in computing income, damages must meet the tests summarized in paragraph 4 of interpretation bulletin IT-467. As we are not cognizant of any of the relevant facts particular to your situation, we cannot offer an opinion concerning whether the outlay was made for the purpose of gaining or producing income from business or property.
If your questions pertain to a completer transaction, you should contact you local district taxation office (305 René Lévesque Blvd. West, Montreal, H2Z 1A6). We regret that we cannot be of assistance to you.
Yours truly,
for Director Business and General DivisionSpecialty Rulings Directorate Legislative and IntergovernmentalAffairs Branch