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:
The taxpayer was a passenger in an automobile which was involved in an accident. The taxpayer sustained personal injuries. As a consequence of the accident, the taxpayer commenced an action against the owner and the operator of the vehicle in which XXXXXXXXXX was a passenger. Pursuant to an out-of-court settlement, the insurer of that vehicle has agreed to make certain periodic payments to the taxpayer or XXXXXXXXXX estate as the case may be.
The issue is the income tax treatment of the periodic payments in the hands of the taxpayer or his estate.
Position TAKEN:
We rule that the payments will not be taxable under any provision of the Income Tax Act as it currently reads.
Reasons FOR POSITION TAKEN:
The terms of the settlement are considered to be consistent with the Department's position set out in paragraphs 3 and 5 of IT-365R2.
961246
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letters of XXXXXXXXXX, with enclosures wherein you request an advance income tax ruling on behalf of the above-named taxpayer with respect to a proposed structured settlement for damages arising out of personal injuries suffered by the taxpayer.
You describe the facts and proposed transactions as follows:
Statement of Facts
1. XXXXXXXXXX.
2.On or about XXXXXXXXXX was a passenger in an automobile when it collided with another vehicle. The vehicle in which XXXXXXXXXX was a passenger was being operated by XXXXXXXXXX and was owned by XXXXXXXXXX The other vehicle was being operated by XXXXXXXXXX and was owned by XXXXXXXXXX As a result of the accident, XXXXXXXXXX sustained severe personal injuries.
3. XXXXXXXXXX (the Plaintiffs) commenced an action (Action XXXXXXXXXX) in XXXXXXXXXX against XXXXXXXXXX (the Defendants), XXXXXXXXXX
(b) On XXXXXXXXXX the Plaintiffs discontinued the action in (a) above in respect of XXXXXXXXXX
(c) XXXXXXXXXX
4.The Plaintiffs have reached an out-of-court settlement with the Defendants with respect to their claims, subject to receipt of a favourable advance income tax ruling with respect to the payments under the settlement described in 5 below.
5.The terms of the settlement in respect of damages for personal injury, provide, among other matters, for the payment to XXXXXXXXXX or XXXXXXXXXX legal representative of lifetime monthly payments, commencing on XXXXXXXXXX of $XXXXXXXXXX with indexing at 3% and a guarantee period of 35 years. Should XXXXXXXXXX die prior to the time that all the guaranteed payments have been made, the balance of such payments will be payable to XXXXXXXXXX estate.
6.The obligation to make the payments in 5 above will be met by XXXXXXXXXX by virtue of an assignment by XXXXXXXXXX with respect to its obligations to make those payments and the assumption of those obligations by XXXXXXXXXX will consent to the assignment and assumption. In consideration of the XXXXXXXXXX making such payments, the Plaintiffs settle their claims against the Defendants and the insurers of XXXXXXXXXX will not, however, be released and discharged from making such payments and each payment shall to the extent thereof and only to that extent, operate as a pro tanto release and discharge of the obligation to make such payments.
7.XXXXXXXXXX proposes to fund its obligations to make the payments in 5 above by the purchase of an annuity contract issued by XXXXXXXXXX The annuity contract will be non-commutable, non-assignable and non-transferable.
8.The owner and annuitant (beneficiary) under the annuity contract will be the XXXXXXXXXX however, an irrevocable direction will be executed in respect of the annuity contract directing the issuer to make the payments directly to XXXXXXXXXX or XXXXXXXXXX legal representative, or XXXXXXXXXX estate, as the case may be.
9.You have advised and you confirm to the best of your knowledge that none of the issues involved in this ruling request is being considered by a Tax Services office or a Tax Centre in connection with a tax return already filed and none of the issues is under objection. Further, you have confirmed that no payments will be made until the requested ruling has been given.
Proposed Transaction
10.The Plaintiffs propose to execute the terms of the settlement arrangement containing, among other matters, the provisions set forth in paragraph 5 above.
Purpose of the Proposed Transaction
11.The purpose of the proposed transaction is to settle the claim for damages of the Plaintiffs against the Defendants and to provide for the payment of damages in respect of such claim.
Rulings Requested and Given
Provided that the above-mentioned facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that the Minutes of Settlement and Release is substantially the same as the document submitted with your letter of XXXXXXXXXX, and that the transaction is carried out as described herein, we confirm that the payments set forth in paragraph 5 above which will be received by XXXXXXXXXX or XXXXXXXXXX legal representative, or XXXXXXXXXX estate, as the case may be, will not be subject to tax in their hands under any provision of the Income Tax Act (Canada), as it presently reads.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by the Department of National Revenue, Taxation and is binding on the Department provided the Minutes of Settlement and Release is executed on or before XXXXXXXXXX.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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