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 when XXXXXXXXXX was struck by a motor vehicle when XXXXXXXXXX The individual and XXXXXXXXXX Guardians commenced an action against the XXXXXXXXXX . Pursuant to a proposed court settlement ( XXXXXXXXXX Court proceedings involved), the defendants' insurers will jointly 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 2000-004997
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Madam:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX (the "Claimant") XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the Claimant with respect to a 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 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 XXXXXXXXXX, the Claimant was involved in a motor vehicle accident and sustained serious and permanent personal injuries.
3. The Claimant and several family members commenced an action (Court File No. XXXXXXXXXX) in the XXXXXXXXXX Court, General Division (the "Court") against the persons named therein (the "Defendants"). The insurers involved are XXXXXXXXXX (the "Insurers").
4. The judgment in favour of the Claimant, subject to the receipt of a favourable ruling with respect to the payments under the settlements described in paragraph 5 below, was upheld on appeal to the XXXXXXXXXX Court of Appeal and must now be satisfied.
5. (a) The terms of the draft Judgment provide, among other matters, for payment to the Claimant, subject to any further order the Court may make, of the following:
i) lifetime monthly payments of $XXXXXXXXXX a month indexed at the consumer price index payable commencing XXXXXXXXXX plus lifetime monthly payments of $XXXXXXXXXX indexed at the consumer price index plus XXXXXXXXXX% payable commencing XXXXXXXXXX, and guaranteed for XXXXXXXXXX years.
ii) guaranteed lump sum payments of XXXXXXXXXX.
(b) Should the Claimant die prior to the time that all guaranteed payments are made, the balance of the payments will be payable to the Claimant's estate or named beneficiaries.
6. The obligation of the Insurers to make the payments referred to in paragraph 5 will be met jointly by the Insurers. In consideration of the Insurers making such payments, the Claimant settles XXXXXXXXXX claims against the Defendants. The Insurers will not, however, be released and discharged from making such payment 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 Insurers jointly propose to fund their obligation to make the payments described in paragraph 5(a)(i) and (ii) above by the purchase of an annuity contract issued by the XXXXXXXXXX ("Lifeco"). 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 Insurers jointly, 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.
Proposed Transaction
9. The Claimant proposes to enter into an arrangement containing, among other matters, the provisions set forth in paragraph 5 above.
Purpose of the Proposed Transaction
10. 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 in accordance with the Judgment.
Rulings Given
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 is substantially the same as the document 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 by 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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