17 November 1989 Income Tax Severed Letter AC58835 - Deductibility of Interest Element of Payment for Damages

19(1)                       5-8835
                                                J.D. Jones
                                                (613) 957-2104

Dear Sirs:

Re: Deductibility of Interest Element of Payment for Damages

This is in reply to your letter of October 2, 1989, requesting our confirmation of your understanding of the application of the comments contained in paragraph 11 of IT-467 .

Paragraph 11 of IT-467 states, "The interest element, if any, in an award for damages is considered to be a component of the damages, Such interest included with damages awarded will be deductible if the damages themselves are deductible.

In a case where damages are partially deductible, the interest element will be deductible in the same ratio. Similarly, legal fees incurred in the payment of damages will be deductible in accordance with the principle expressed for interest."

Based upon the above comments, we confirm your understanding that the comments apply equally to payments made in an out-of-court settlement including payments as damages for wrongful dismissal, subject to the comments contained in paragraph 13 of IT-467 . Further, we confirm your view that an interest element, if any, included in a payment to a dismissed employee as damages for wrongful dismissal will normally constitute a deductible expense to the employer, subject to the comments in paragraph 13 of IT-467 .

We trust you will find these comments helpful.

Yours truly,

for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch