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 involved in a motor vehicle accident. The individual and XXXXXXXXXX Guardian commenced an action against the other driver. Pursuant to a court settlement, the defendants' insurers will agree to make periodic payments to the Claimant and if the Claimant dies within the XXXXXXXXXX year guarantee period, to the Claimant's estate.
The issue is the income tax treatment of the periodic payments.
Position TAKEN:
We ruled 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 2000-005320
Attention: XXXXXXXXXX
XXXXXXXXXX , 2000
Dear Sirs:
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 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 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. The Claimant presently files XXXXXXXXXX income tax returns at the XXXXXXXXXX Taxation Centre.
2. On or about XXXXXXXXXX, the Claimant was involved in a motor vehicle accident and sustained serious personal injuries.
3. The Claimant and XXXXXXXXXX Guardian commenced an action (Action No. XXXXXXXXXX) in the Supreme Court of XXXXXXXXXX against the persons named therein (the "Defendants"). The insurer involved is XXXXXXXXXX (the "Insurer") pursuant to XXXXXXXXXX.
4. The trial of the Action was heard by a judge and jury. At the end of the trial, the jury issued an assessment in the amount of $XXXXXXXXXX in favour of the Claimant to the judge in the Action. The Court ordered the Insurer to pay the Claimant damages under a structured settlement pursuant to XXXXXXXXXX of the Insurance (Motor Vehicle) Act, subject to the receipt of a favourable ruling with respect to the payments described in paragraph 5 below.
5. (a) The terms of the settlement in respect of damages for personal injury provide, amongst other matters, for payment to the Claimant of the following:
i) the sum of $XXXXXXXXXX plus costs and disbursements;
ii) the monthly sum of $XXXXXXXXXX commencing on XXXXXXXXXX and increasing by 2% compounded annually payable and guaranteed for a term of XXXXXXXXXX years;
(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 to make the payments in paragraph 5 will be met by the Insurer. In consideration of the Insurer making such payments, the Claimant agrees to settle XXXXXXXXXX claims against the Defendants.
7 The Insurer will fund its obligations to make the payments referred to in subparagraph 5(a)(ii) by purchasing a single premium annuity contract issued by XXXXXXXXXX ("Lifeco").
8. The owner and annuitant (beneficiary) under the contracts will be the Insurer, however, an irrevocable direction will be executed in respect of the annuity contracts directing Lifeco to make the payments in accordance with subparagraph 5(a)(ii) above. The annuity contracts will be non-commutable, non-assignable and non-transferable.
9. The Insurer will not, however, be released and discharged from making the payments referred to in paragraph 5(a) and each payment made 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.
Proposed Transaction
10. The Claimant proposes to enter into a Structured Judgment Agreement ("Agreement") to comply with the Court Order containing, among other matters, that the damages be paid by way of a structured settlement under section 55 of the Insurance (Motor Vehicle) Act and 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 Claimant against the Defendants, in respect to the injuries sustained by the Claimant and to provide for the payment of damages in respect of such claim.
Rulings 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 terms of the Agreement 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 XXXXXXXXXX estate, or named beneficiaries, 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 Canada Customs and Revenue Agency (the "Agency"), and is binding on the Agency provided the Agreement 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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