8 September 2003 External T.I. 2003-0031035 - POST-JUDGEMENT INTEREST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Can a damage award that has been ordered structured at trial date and that was subsequently appealed and affirmed at Appeal court where it was increased by post-judgment interest be structured in total, that is the original amount awarded plus the interest.

POSITION TAKEN:

Only the awarded amount can be structured, as post-judgment interest is not considered damages for personal injury.

Reasons FOR POSITION TAKEN:

Post-judgment interest is considered interest and is taxable.

									2003-003103
XXXXXXXXXX 								C. Tremblay, CMA
(613) 957-2139
September 8, 2003

Dear XXXXXXXXXX:

Re: Structured Settlement

This is in reply to your letter of July 21, 2003, regarding the use of a structured settlement in a specific situation. You advise us that a plaintiff was successful in securing damages for personal injury action in the Ontario Superior Court of Justice and was directed by the trial judge under the terms of section 116 of the Ontario Courts of Justice Act to have the award structured into a tax-free structured settlement as contemplated under Interpretation Bulletin IT-365R2. The decision was appealed and the Appeal judge confirmed the trial court decision and awarded post-judgement interest under section 129 of the Ontario Courts of Justice Act. The initial trial award amount to be structured was never requested to be paid or deposited into a trust, nor to accrue in an interest bearing account bearing the name of the claimant, and the liability for the unpaid judgment and for the post-judgment interest has simply accrued in relation to this damage award in accordance with the terms of the Ontario Courts of Justice Act. You request our views on whether the post-judgment interest can be added to the personal injury damage award and be structured as a structured settlement.

Our Comments

Although we recognize that it is not clear from reading paragraph 4 of IT-365R2, it is our position that pre-judgment interest on personal injury or death awards are not taxable, and that post-judgment interest is considered interest for all purposes of the Income Tax Act (the "Act") and is taxable. Accordingly, any portion that represents post-judgment interest cannot be included in the structured settlement.

The term "post-judgment" interest is not defined in the Act, however subsection 129(1) of the Ontario Courts of Justice Act describes post-judgment interest to be money owing under an order, including costs to be assessed or costs fixed by the court, that bears interest at the post-judgment interest rate, calculated from the date of the order. Since the Appeal court awarded the interest under that subsection, the initial order would then be the trial date order and in our view, the post-judgment interest would refer to interest payable from the date of such award (the initial trial date) to the date the award is paid. In our view, post-judgment interest represents interest income rather than being in the nature of damages and is taxable under paragraph 12(1)(c) of the Act.

However, in a situation where a subsequent decision is considered the valid award decision (i.e. the trial decision does not establish the existence of a debt), we are prepared to consider a specific fact situation involving a proposed structured settlement transaction on an advance income tax rulings basis. The procedures for submitting an advance income tax ruling are set out in Information Circular 70-6R5.

We hope that our comments are of assistance, but would caution you that they do not constitute an advance income tax ruling, and accordingly, are not binding on the CCRA with respect to any particular transaction.

Yours truly,

Steve Tevlin
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislation and Policy Branch