Regarding damages received on behalf of a child of parents killed in an accident, CRA indicated that where the amount received was not awarded as damages in respect of mental injury suffered by the child, ss. 81(1)(g.1) and (g.2) would not apply and the investment income would be taxable. Where an annuity contract was purchased by a taxpayer or taxpayer’s representative with the proceeds of a lump-sum award received for damages for personal injury or death, the income component of the annuity could be exempted under ss. 81(1)(g.1) and (g.2) only on the same basis.
The lump-sum award could also be organized as a structured settlement, which would entail the casualty insurer being the owner of an annuity contract and reporting the interest element inherent in the annuity contract in its income. Provided the conditions in IT-365R2, para. 5 were met, the payments received by the claimant would be non-taxable.