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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: [TaxInterpretations translation] Is an amount of interest generated from a non-taxable assistance amount received under the National Reconciliation Program for the Duplessis Orphans taxable?
Position: Yes.
Reasons: Application of 12(1)(c). In addition, paragraph 81(1)(g.1) is not applicable and this is not an amount of pre-judgment interest.
June 10, 2004
Individual Returns and Payments Headquarters
Processing Branch Martine Filiatrault, CA
Tel.: (613) 957-8953
Attention: Ms. Brenda Goyette
2004-007378Request for Interpretation
Duplessis Orphans - Interest
This letter is in response to your email of April 29, 2004, in which you requested our opinion on the above subject.
Facts
Mr. A received in XXXXXXXXXX an amount of financial assistance ($XXXXXXXXX) from the Quebec government under the National Reconciliation Program for Duplessis Orphans (the "Program") because he met the established criteria. At the time, Mr. A was over 21 years old. However, in order to receive the amount of assistance, Mr. A had to sign a full, final and general release in XXXXXXXXXX. It should be noted that a paragraph was added to the bottom of the release stating that the assistance amount and the future interest thereon were not taxable to Mr. A.
Mr. A appears to have invested the assistance amount (or a portion thereof) in the bank and is earning interest on it for which he receives a T5 slip. Based on the document he signed in XXXXXXXXXX, he considers this interest to be non-taxable.
Question
You wish to know if the annual interest amount, discussed above, should be included in the taxpayer's income calculation.
Our Opinion
Where a taxpayer receives an amount as an award for an injury and that amount represents general damages for, inter alia, pain and suffering or loss of enjoyment of life, the amount of damages will generally not be taxable. This is the position we have taken with respect to the amounts of assistance that taxpayers have received under the Program.
Where the taxpayer invests this amount of assistance and it generates interest income, that interest income is taxable and must be included in the taxpayer's income pursuant to paragraph 12(1)(c) of the Income Tax Act (the "Act"). There are, however, some exceptions. Indeed, as stated in paragraph 4 of Interpretation Bulletin IT-365R2, if the amount of the damages (the assistance amount) includes an amount of interest (i.e. pre-judgment interest), the latter will not be taxable to the taxpayer. We understand, however, that the Program did not provide for the payment of pre-judgment interest. Furthermore, if Mr. A had been under 21 years of age at the time he received the assistance under the Program, he would not have had to include the amount of interest generated by that assistance in computing his income until he reached 21 years of age, by virtue of paragraph 81(1)(g.1). We understand, however, that Mr. A was over 21 years of age at the time he received the assistance. None of the above exceptions apply in Mr. A's case; consequently, we are of the view that the interest on his assistance is taxable and must be included in computing his income.
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.
Should you require additional information regarding this matter, please do not hesitate to contact us.
Best regards,
Ghislaine Landry, CGA
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
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