28 November 1994 External T.I. 9428285 - STRUCTURED SETTLEMENTS

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 Department.

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

Principal Issues:

An individual received periodic payments pursuant to an arrangement which can be regarded as being a "structured settlement" described in paragraph 5 of IT-365R2. The payments are guaranteed for a term of 15 years. As a result of the death of the individual, the remaining payments will be made to either the individual's estate or the individual's named beneficiary. Will the payments continue to be non-taxable?

Position TAKEN:

The payments will be non-taxable.

Reasons FOR POSITION TAKEN:

The position is consistent with previous correspondence issued by the Department.

	 	942828
XXXXXXXXXX	M. Eisner

Attention: XXXXXXXXXX

November 28, 1994

Dear Sirs:

Re: Structured Settlements

This is in reply to your letter of October 24, 1994 concerning whether or not certain payments made in respect of damages for personal injury or death are non-taxable.

In your letter, you appear to have set out circumstances that relate to an actual situation. Confirmation of the tax consequences of proposed transactions will only be provided in response to a request for an advance income tax ruling . The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R2 and the related Special Release dated September 30, 1992. On the other hand, if the transactions have already occurred, you may wish to submit the relevant facts and documentation to your local district taxation office. We are, however, prepared to provide you with the following general comments.

Our Comments

You are concerned with the type of situation where an individual received periodic payments under an arrangement which can be regarded as being a structured settlement described in paragraph 5 of Interpretation Bulletin IT-365R2 "Damages, Settlements, and Similar Receipts". As a consequence, the payments were non-taxable in the hands of the individual. The payments are guaranteed to be made for a period of fifteen years. As a result of the death of the individual during the guaranteed term, the remaining payments will be made to the individual's estate.

With respect to the above circumstances, it is our view that the periodic payments received by the estate would not be subject to tax in its hands. It is also our view that if the individual had specified that the payments were to be made to a named beneficiary subsequent to his or her death, the payments would be non-taxable in the hands of the beneficiary.

These comments represent our opinion of the law as it applies generally and are not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

J.A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch