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 (the Claimant ) sustained personal injuries by a medical practitioner at birth. The individual and XXXXXXXXXX Guardian commenced an action against the medical doctor and the hospital. Pursuant to a proposed court settlement ( XXXXXXXXXX Court proceedings involved), the defendants' insurer will agree to make periodic payments to the Claimant, and if the Claimant dies within the guarantee period, to the Claimant's estate.
The issue is the income tax treatment of the periodic payments.
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 IT-365R2 (in particular paragraphs 3 and 5).
XXXXXXXXXX 2000-004764
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Madam:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX (the "Claimant")
We are replying to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the Claimant in accordance with the proposed draft Judgment, XXXXXXXXXX and XXXXXXXXXX, with respect to the proposed structured settlement for damages arising out of personal injuries suffered by the Claimant.
To the best of your knowledge, and that of the taxpayer involved, none of the issues contained herein is, is in an earlier tax return of the taxpayer or a related person, being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person or is under objection by the taxpayer or a related person or is the subject of a ruling previously issued and is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired.
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 the month of XXXXXXXXXX, the Claimant and XXXXXXXXXX mother (the "Guardian"), were under the care of doctors at XXXXXXXXXX (the "Hospital"), XXXXXXXXXX. By reason of the negligence and fault of XXXXXXXXXX and the Hospital, the Claimant sustained severe personal injuries.
3. The Claimant, and the Guardian, commenced an action (Action number XXXXXXXXXX) in the XXXXXXXXXX, (the "Court") against the persons named therein (the "Defendants"). The insurer involved is XXXXXXXXXX (the "Insurer").
4. The action was heard by XXXXXXXXXX of the Court, who orders that part of the damages payable to the Claimant, specifically XXXXXXXXXX costs of future care, be paid by way of periodic payments, as set out in the draft Judgment, provided a favourable income tax ruling with respect to such periodic payments described in paragraph 5 below is obtained.
5. The terms of the draft Judgment provide, among other matters, for payment in trust for the benefit of the Claimant, subject to further order of the Court or other court of superior jurisdiction in Canada or, in the event of death of the Claimant, to XXXXXXXXXX estate, as the case may be, the sum of $XXXXXXXXXX a month indexed at XXXXXXXXXX% per annum payable commencing XXXXXXXXXX, to and including XXXXXXXXXX, and thereafter the sum of $XXXXXXXXXX a month indexed at XXXXXXXXXX% per annum commencing on XXXXXXXXXX, guaranteed to be paid for the period to and including XXXXXXXXXX, and payable for so long as the Claimant is alive.
6. The obligation of the Defendants to make the payments referred to in paragraph 5 will be assigned by the Defendants and the Insurer to XXXXXXXXXX (the "Second Insurer"), who will assume their obligation to make such payments. In consideration of the Second Insurer making such payments, the Claimant agrees to settle XXXXXXXXXX claims against the Defendants.
7. The Second Insurer proposes to fund the obligation assumed by it to make the foregoing payments under the draft Judgment and proposed Schedule of Payments by the purchase and issue of an annuity contract issued by XXXXXXXXXX ("Lifeco"), using the funds assigned to it by the Defendants and the Insurer. 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 Second Insurer, however, an irrevocable direction will be executed in respect of the annuity contract directing Lifeco to make such payments in accordance with paragraph 5 above.
9. The Second Insurer will not, however, be released and discharged from making the payments referred to in paragraph 5, 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.
10. The Second Insurer is neither the casualty insurer of the Defendants nor a named party to the action.
Proposed Transaction
11. The Court proposes to issue a Judgment in the action containing, among other matters, the provisions set forth in paragraph 5 above.
Purpose of the Proposed Transaction
12. The purpose of the proposed transaction is to resolve the claim for damages for costs of future care of the Claimant against the Defendants in respect of the injuries of the Claimant and to provide for the payment of damages in respect of such claim.
Rulings Requested
Provided that the above mentioned facts and proposed transactions are accurate and constitute complete disclosure of all relevant facts and proposed transactions, that the draft Judgment and the Assignment and Assumption Agreement is substantially the same as the documents provided to us, and that the transaction is carried out as described herein, we confirm that the payments described in paragraph 5 above, which will be received in trust for the Claimant or by XXXXXXXXXX estate, as the case may be, will not be subject to tax in their hands under any provision of the Income Tax Act, as it presently reads.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency") and is binding on the Agency provided the Judgment is executed on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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