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 Claimant is requesting a structured settlement ruling with respect to payments to be received in the future as a result of an out of court settlement with the Insurer. The XXXXXXXXXX was seriously injured in a car accident and sued for damages in court. The Insurer will pay the funds in accordance with a Settlement Agreement.
Position: The amounts received pursuant to the Settlement Agreement will not be taxable.
Reasons: The terms of the settlement are considered to be consistent with the CRA's position as set out in paragraph 5 in IT-365R2.
XXXXXXXXXX 2005-015547
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling: Structured Settlement
XXXXXXXXXX ("Claimant X") Social Insurance Number XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the Claimant X with respect to the proposed structured settlement for damages arising out of personal injuries suffered by Claimant X. We also acknowledge additional information provided in telephone conversations (XXXXXXXXXX).
To the best of your knowledge, and that of the taxpayer involved, none of the issues contained herein is:
(i) dealt with in an earlier tax return of the Claimant or a related person;
(ii) (ii) being considered by a tax services office or taxation center in connection with a previously filed return of the Claimant or a related person;
(iii) (iii) under objection by the Claimant or a related person;
(iv) (iv) before the Courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or
(v) (v) subject of a ruling previously issued by the Income Tax Rulings Directorate.
Our understanding of the facts and proposed transaction is as follows:
Statement of Facts
1. Claimant X was born on XXXXXXXXXX, and currently resides in the City of XXXXXXXXXX in the Province of XXXXXXXXXX within the jurisdiction of the XXXXXXXXXX Tax Services Office.
2. XXXXXXXXXX, ("Claimant Y"), XXXXXXXXXX of the Claimant X, was born on XXXXXXXXXX, and resides in the city of XXXXXXXXXX.
3. On or about XXXXXXXXXX, Claimant X was involved in a motor vehicle accident. The Claimant was severely injured as a result of this accident.
4. Claimant X and Y commenced an action XXXXXXXXXX against persons named therein (the "Defendants"). The insurer involved is XXXXXXXXXX (the "Insurer").
5. Claimant X and Y have now reached an out-of-court settlement with the Defendants with respect to their claims, subject to receipt of a favourable income tax ruling with respect to the payments described in paragraphs 6, 7, and 8 below.
6. In partial settlement of Claimant X and Y's claims, the Insurer will pay $XXXXXXXXXX in trust to Claimant X and Claimant Y, as described in the Structured Settlement Agreement and Release (the "Agreement"), inclusive of taxable fees and disbursements of $XXXXXXXXXX.
7. The insurer also will pay to Claimant X, periodic level payments of $XXXXXXXXXX (the "Periodic Payments") per year commencing XXXXXXXXXX, for XXXXXXXXXX years (the "Guarantee period") or Claimant X's lifetime, whichever is greater, and thereafter for so long as Claimant Y is alive in which event, any such payment will be paid at 50% of the Periodic Payment, as described in the Agreement.
8. In addition to the Periodic Payments described in paragraph 7 above, as described in the Agreement, the Insurer will pay to Claimant X or XXXXXXXXXX legal representative, guaranteed lump sum payments in the amounts and on dates as follows: XXXXXXXXXX
9. In support of the payments described in paragraphs 7 and 8 above, the Insurer plans to apply for and purchase two single premium non-commutable, non-transferable, and non-assignable annuity contracts from XXXXXXXXXX ("AnnuityCo1") and XXXXXXXXXX ("AnnuityCo2"), that will provide the payments, as described in the Agreement. The Insurer will be the owner and annuitant (beneficiary) under each annuity contract; however, an irrevocable direction will be executed in respect of each annuity contract directing AnnuityCo1 and AnnuityCo2, respectively, to make the payments in accordance with paragraph 7 above.
10. The Insurer will be responsible for making, or cause to be made, all payments described in the Agreement and will give irrevocable direction to AnnuityCo1 and AnnuityCo2 to make annuity payments to Claimant X. The Insurer will be released from its obligations on a pro tanto basis as each payment is made.
Proposed Transaction
11. Claimant X and Claimant Y propose to enter into a settlement agreement containing, among other matters, the provisions set forth in paragraphs 6, 7, and 8 above.
Purpose of the Proposed Transaction
12. The purpose of the proposed transaction is to settle the claim for damages of Claimants X and Y, in respect to the injuries sustained by Claimant X and to provide for the payment of damages in respect of such claim to Claimant X.
Ruling 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 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 paragraphs 6, 7 and 8 above, which will be received by Claimant X or XXXXXXXXXX estate, as the case may be, will not be subject to tax in XXXXXXXXXX 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 70-6R5, dated May 17, 2002, issued by the Canada Revenue Agency ("CRA"), and is binding on the CRA provided the Agreement is executed on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
For Director
Financial and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch
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