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: Does a court ordered variance of a structured settlement affect the taxation?
Reasons: Award is the same, only the participation has been changed and had it been done originally, it would have been tax exempt.
XXXXXXXXXX C. Tremblay, CMA
August 22, 2007
Re: Structured Settlement Varied by a Court Order
This is in reply to your letter of February 19, 2007 wherein you requested a technical interpretation in respect of payments being made under a structured settlement arrangement.
You provided us with the example of a structured settlement award payable to a young child that is varied by a court a few years later to provide that the monthly payments are for the benefit of the mother and the child. The reason for the variance is that the mother has to provide extensive care for the child and, as a result, is unable to hold a job and earn income. There is no change in the monthly amount payable under the structured settlement, merely a change in the identity of the persons allowed to benefit from that payment.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (CRA).
In the above example, the monthly payments remain unchanged and it appears that the caregiver mother should have been an additional payee in the original tax-free structured settlement. In such a situation, in our view, the fact that the payees are varied by a court order to include such a caregiver parent should not, in and of itself, affect the tax-free receipt of payments under the structured settlement. However, as previously noted, we would only be able to conclusively resolve this matter in the context of an advance income tax ruling.
We trust that our comments will be of assistance.
R.A. Albert, CA
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2007
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2007