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:
As a result of XXXXXXXXXX the taxpayer sustained personal injuries. Pursuant to an out-of-court settlement, one of the defendants has agreed to make periodic payments to the taxpayer and will assign his liability to make those payments to a casualty insurer XXXXXXXXXX
The issue is the income tax treatment of the periodic payments in the hands of the taxpayer or XXXXXXXXXX estate, as the case may be.
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.
XXXXXXXXXX 961836
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letters of XXXXXXXXXX in regard to your request for an advance income tax ruling on behalf of XXXXXXXXXX (the Claimant) with respect to a proposed structured settlement for personal damages suffered by XXXXXXXXXX.
Our understanding of the facts and proposed transactions is as follows:
Statement of Facts
1.The Claimant was born on XXXXXXXXXX, and presently resides in XXXXXXXXXX.
2.On or about XXXXXXXXXX, the Claimant sustained severe personal injuries XXXXXXXXXX.
3.(a)The Claimant, a minor by XXXXXXXXXX Litigation Guardian XXXXXXXXXX, and various other individuals (collectively referred to as the Plaintiffs) commenced an action (XXXXXXXXXX) in the XXXXXXXXXX Court (General Division) against XXXXXXXXXX and a number of other defendants (the Other Defendants).
(b)The Other Defendants and XXXXXXXXXX admitted joint and several liability, and on XXXXXXXXXX, the XXXXXXXXXX (the Court) issued a consent judgement in that regard.
XXXXXXXXXX
4. XXXXXXXXXX
5.(a)The terms of the settlement are set out in a draft Judgement and provide, among other matters, for payment to the Claimant, in respect of damages for personal injury, of the following:
(i) Commencing on XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX with indexing at XXXXXXXXXX% per annum and a guaranteed period up to and including XXXXXXXXXX;
(ii) Commencing on XXXXXXXXXX, guaranteed monthly payments of $XXXXXXXXXX up to and including XXXXXXXXXX, with indexing at the rate of XXXXXXXXXX% per annum;
(iii)Commencing on XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX, with indexing at the rate of XXXXXXXXXX% per annum and a guaranteed period up to and including XXXXXXXXXX and
(iv) Commencing on XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX with indexing at the rate of XXXXXXXXXX% per annum and a guaranteed period up to and including XXXXXXXXXX.
(b)Should the Claimant die prior to the time that all the guaranteed payments in (a) 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 (the Insurer) by virtue of an assignment by XXXXXXXXXX with respect to XXXXXXXXXX obligations to make those payments and the assumption of those obligations by the Insurer. The Claimant, by XXXXXXXXXX legal representatives, will consent to the assignment and the assumption. In consideration of the Insurer making such payments, the Plaintiffs settle their claim against XXXXXXXXXX The Insurer 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.The Insurer proposes to fund its obligations to make the payments in 5 above by the purchase of an annuity contract issued by XXXXXXXXXX (Insurer No.2). 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 Insurer. However, an irrevocable direction will be executed in respect of the annuity contract directing Insurer No. 2 to make the payments directly to the legal representatives of the Claimant, 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, XXXXXXXXXX and the Other Defendants 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 personal damages to the Claimant against XXXXXXXXXX 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 Judgement 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 the legal representatives of the Claimant or XXXXXXXXXX estate, as the case may be, will not be subject to tax 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 draft Judgment 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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