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: Will the payments to be received pursuant to the structured settlement agreement be taxable in the claimant's hands under the circumstances described?
Position: No
Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in paragraph 5 of Interpretation Bulletin IT-365R2
XXXXXXXXXX
2012-045037
XXXXXXXXXX, 2012
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
Structured Settlement
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the Plaintiff with respect to the proposed structured settlement for damages arising out of personal injuries suffered by the Plaintiff.
We understand that, to the best of your knowledge, and that of the Plaintiff, none of the issues described herein is:
a) in an earlier tax return of the Plaintiff or a related person;
b) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the Plaintiff or a related person;
c) under objection by the Plaintiff 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; nor
e) the subject of a ruling previously issued.
Facts
Our understanding of the facts and proposed transaction is as follows:
1. The Plaintiff was born on XXXXXXXXXX. She presently resides in XXXXXXXXXX. The Plaintiff's mailing address is XXXXXXXXXX.
2. On or about XXXXXXXXXX, the Plaintiff was injured in a XXXXXXXXXX accident that occurred on XXXXXXXXXX. The Plaintiff suffered severe permanent personal injuries, damages and loss as a result of the accident.
3. The Plaintiff commenced an action by Amended Statement of Claim issued XXXXXXXXXX against the defendants, XXXXXXXXXX (collectively, the "Defendants").
4. The defendant, XXXXXXXXXX (the "Insurer").
5. The Plaintiff has reached a settlement with the Defendants with respect to the claims, for periodic payments (the "Structure Payments") and certain non-structure consideration subject to receipt of a favourable income tax ruling with respect to the Structure Payments.
6. The terms of the Settlement Agreement provide, among other consideration, for the payment to the Plaintiff of lifetime monthly payments of $XXXXXXXXXX, without indexation, commencing on XXXXXXXXXX (which monthly payments are guaranteed to be made through XXXXXXXXXX, regardless of whether the Plaintiff is alive), plus lump sum payments of $XXXXXXXXXX due on XXXXXXXXXX, respectively.
7. The obligation to make the payments referred to in 6 above will be met by the Insurer. In consideration of the Insurer making the Structured Payments (and the other defendants either directly or through their insurers, providing certain non-structure consideration called for the Settlement Agreement and Release) the Plaintiff has agreed to settle her claims against the Defendants.
8. The Insurer will not, however, be released and discharged from making the Structured Payments, and each payment made by the Annuity Issuers (defined in 9 below) shall, to the extent thereof and only to that extent, operate as a pro tanto release and discharge of the Insurer's corresponding Structured Payment obligation.
9. The Insurer proposes to fund the Structure Payments by the purchase of two, single premium annuity contracts (collectively, the "Annuity Contracts"), one annuity contract issued by XXXXXXXXXX and the other annuity contract issued by XXXXXXXXXX (collectively, the "Annuity Issuers"). The Annuity Contracts will be non-assignable, non-commutable, and non-transferable.
10. The owner and annuitant (beneficiary) under the Annuity Contracts will be the Insurer, however, the Insurer will execute an irrevocable direction in respect of the Annuity Contracts directing the Annuity Issuers to make the payments thereunder directly to the plaintiff or, in the event of the Plaintiff's death before the end of the guarantee period, to such secondary payee(s) as the Plaintiff, while she remains alive, may subsequently direct in writing, from time to time, to the Annuity Issuers, provided that in the absence of such direction or if there is no secondary payee living at the time of the Plaintiff's death, to the Plaintiff's estate and provided further that any such direction shall only be effective if it is in writing and in a form acceptable and delivered to the Annuity Issuers.
Proposed Transaction
11. The Plaintiff proposes to enter into the Settlement Agreement containing, among other matters, the provisions set forth in 6 above.
12. Notwithstanding the above, no payments under 6 above shall be made prior to the date of this ruling.
Purpose of the Proposed Transaction
13. The purpose of the proposed transaction is to settle the claim for damages of the Plaintiff against the Defendants in respect of the injuries of the Plaintiff and to provide for the payment of damages in respect of such claims.
Ruling Given
Provided that the above-mentioned facts and proposed transaction are accurate and constitute complete disclosure of all the relevant facts and proposed transaction, that the Settlement Agreement is substantially the same as the documents provided to us, as reflected herein, and that the proposed transaction is carried out as described herein, we confirm that the payments, as set forth in 6 above, which will be received by the Plaintiff, or, in the event of the death of the Plaintiff before the end of the guarantee period, by the Plaintiff's named secondary payee(e) or the Estate of the Plaintiff, 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.
The above ruling, which is based on the Income Tax Act in its present form and does not take into account any proposed amendments thereto, 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 (the "CRA"), and is binding on the CRA provided the Settlement Agreement is executed on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
For Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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