2004 Ruling 2004-0094081R3 - Structured settlement

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.

Principal Issues: The Claimants (wife and daughters of deceased) request a structured settlement ruling relating to the wrongful death of the deceased in a XXXXXXXXXX . The US insurers will pay the funds in US dollars in accordance with the Settlement Agreement.

Position: The amounts received will not be taxable.

Reasons: The terms of the settlement are considered to be consistent with CRA' s position set out in paragraph 5 of IT-365R2.

XXXXXXXXXX 						2004-009408

XXXXXXXXXX, 2004

Dear XXXXXXXXXX,

Re: Advance Income Tax Ruling - Structured Settlement
XXXXXXXXXX
XXXXXXXXXX

We are replying to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the Claimants with respect to the proposed structured settlement for damages arising out the death of the father of B and C and the husband of S.

To the best of our knowledge, and that of the Claimants involved, none of the issues contained herein is:

(a) dealt with in an earlier tax return of S, B or C or a related person;

(b) being considered by a tax services office or taxation centre in connection with a previously filed return of S, B or C or a related person;

(c) under objection by S, B or C or a related person;

(d) before the Courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or

(e) subject of a ruling previously issued by the Income Tax Rulings Directorate.

Definitions:

In this letter, the following terms have the meanings specified:

"Act" means the Income Tax Act, RSC 1985, c.1 (5th Supp.), as amended as at the date hereof;

"Annuities" means the annuity policies issued by Lifecos for the benefit of the Insurers, payments under which will be irrevocably directed to the Claimants;

"Claimants" means S, B, and C;

"Assignees" means XXXXXXXXXX, all corporations resident in the U.S.;

"Assignment Agreement" means the agreement between the Insurers and the Assignees;

"B" means XXXXXXXXXX, a minor resident of Canada and the child of XXXXXXXXXX and the Deceased. XXXXXXXXXX's date of birth is XXXXXXXXXX;

"C" means XXXXXXXXXX, a minor resident of Canada and the child of XXXXXXXXXX and the Deceased. XXXXXXXXXX's date of birth is XXXXXXXXXX;

"CRA" means the Canada Revenue Agency;

"Deceased" means XXXXXXXXXX, the father of B and C and the husband of S;

"IT-365R2" means Interpretation Bulletin IT-365R2, Damages, Settlements and Similar Receipts, dated May 8, 1987;

"Insurers" means the insurance entities insuring the Defendants: XXXXXXXXXX, a corporation resident of the U.S., and XXXXXXXXXX, which carries on business in the U.S.;

"Lifecos" means collectively XXXXXXXXXX, all corporations resident in the U.S.;

"Settlement Agreement" means a settlement agreement among the Defendants, S, B, C and the Insurers;

"S" means XXXXXXXXXX, an individual resident of Canada and the wife of the Deceased and the mother of XXXXXXXXXX and XXXXXXXXXX. XXXXXXXXXX's date of birth is XXXXXXXXXX;

"U.S." means the United States of America; and

XXXXXXXXXX, a U.S. based insurance broker, which carries on business as XXXXXXXXXX.

All dollar amounts referred to in this ruling are to lawful currency of the U.S.

Statement of Facts

1. The Claimants presently reside in XXXXXXXXXX in the Province of XXXXXXXXXX, within the jurisdiction of the XXXXXXXXXX Tax Services Office.

2. XXXXXXXXXX.

3. As a result of the wrongful death of the Deceased, the Claimants became entitled at law to damages. The Claimants filed a claim against the Defendants seeking recovery from the Defendants.

4. The Insurers insured the Defendants.

5. The Claimants have now reached an out-of-court settlement with the Defendants with respect to the wrongful death claim, the details of which are more particularly described in the Settlement Agreement. Under the terms of the Settlement Agreement, XXXXXXXXXX has been retained to negotiate a structured settlement for the benefit of the Claimants.

6. The Settlement Agreement is, however, subject to receipt of a favourable income tax ruling with respect to the payments under the Settlement Agreement as more fully described in paragraphs 7, 8 and 9 below.

7. The Settlement Agreement provides, among other matters, for payment to S of:

(a) The following guaranteed sums:

XXXXXXXXXX.

(b) Monthly payments in the amount of $XXXXXXXXXX per month commencing on XXXXXXXXXX, for the lifetime of XXXXXXXXXX guaranteed to be payable for XXXXXXXXXX years. These payments increase at XXXXXXXXXX% compounded annually, with the first such increase on XXXXXXXXXX.

(c) Monthly payments in the amount of $XXXXXXXXXX per month commencing XXXXXXXXXX guaranteed to be payable for XXXXXXXXXX.

(d) Should S die prior to the time that all guaranteed payments are made, the balance of the payments will be payable to S's estate or named beneficiaries.

8. The Settlement Agreement provides, among other matters, for payment to B of:

(a) The following guaranteed sums:

XXXXXXXXXX.

(b) Monthly payments in the amount of $XXXXXXXXXX per month commencing on XXXXXXXXXX, for the lifetime of B guaranteed to be payable for XXXXXXXXXX years. These payments increase at XXXXXXXXXX% compounded annually, with the first such increase on XXXXXXXXXX.

(c) Should B die prior to the time that all guaranteed payments are made, the balance of the payments will be payable to B's estate or named beneficiaries.

(d) B will have the ability to change beneficiaries upon reaching the age of majority.

9. The Settlement Agreement provides, among other matters, for payment to C of:

(a) The following guaranteed sums:

XXXXXXXXXX.

(b) Monthly payments in the amount of $XXXXXXXXXX per month commencing on XXXXXXXXXX, for the lifetime of C guaranteed to be payable for XXXXXXXXXX. These payments increase at XXXXXXXXXX% compounded annually, with the first such increase on XXXXXXXXXX .

(c) Should C die prior to the time that all guaranteed payments are made, the balance of the payments will be payable to C's estate or named beneficiaries.

(d) C will have the ability to change beneficiaries upon reaching the age of majority.

10. The Insurers have assigned their duties and obligations to make future periodic payments to the Assignees. The Assignees propose to fund their obligations to make the foregoing payments referred to in paragraphs 7, 8 and 9 under the Settlement Agreement by the purchase of annuity policies from the Lifecos. The Annuities will be non-commutable, non-assignable and non-transferable.

11. In consideration of the Assignees making the payments referred to in paragraphs 7, 8 and 9, the Claimants will settle their wrongful death claims against the Defendants. The Assignees will not, however, be released and discharged from making 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 payment.

12. The owner and annuitant (beneficiary) under each of the Annuities issued by the Lifecos will be an Assignee, however, an irrevocable direction will be executed in respect of the Annuities directing the Lifecos to make such payments directly to S, B and C or S, B and C's estate or designated beneficiary, as the case may be.

Proposed Transaction

13. The Claimants propose to enter into the Settlement Agreement containing, among other matters, the terms set forth in paragraphs 7, 8 and 9 above.

Purpose of the Proposed Transaction

The purpose of the proposed transaction is to settle the claim for damages of the Claimants against the Defendants and to provide for the payment of damages in respect of such claim.

Ruling Given

Provided that the above-mentioned facts and proposed transactions are accurate and constitute complete disclosure of the relevant facts and proposed transactions and provided that the Settlement Agreements are substantially the same as the documents provided to us, and that the transaction is carried out as described herein, we confirm that the payments which will be received by S, B and C or their estates, as the case may be, as set forth in paragraphs 7, 8 and 9 above, will not be subject to tax in their hands under any provision of the Act as it presently reads.

This ruling is given subject to the general limitations and qualifications set forth in Information circular 70-6R5, dated May 17, 2002, issued by the CRA, and is binding on the CRA provided the Settlement Agreements are executed on or before XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
For Director
Financial Industries Division
Policy and Planning Branch