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 2013-047948
XXXXXXXXXX, 2013
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
Structured Settlement
XXXXXXXXXX (the "Plaintiff") SIN: 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 and presently resides in the City of XXXXXXXXXX, in the Province of XXXXXXXXXX. The Plaintiff's mailing address is XXXXXXXXXX.
2. On or about XXXXXXXXXX, the Plaintiff was injured in XXXXXXXXXX accident (the "Accident") that occurred at XXXXXXXXXX when the Plaintiff was struck by a XXXXXXXXXX owned by the Plaintiff and operated by XXXXXXXXXX (since deceased). As a result of the Accident, the Plaintiff suffered severe permanent personal injuries, damages and loss.
3. The Plaintiff commenced an action in the Court of Queen's Bench of XXXXXXXXXX, Judicial District of XXXXXXXXXX bearing Court File Number XXXXXXXXXX, against XXXXXXXXXX, and XXXXXXXXXX, Personal Representative of the XXXXXXXXXX (collectively, the "Defendants").
4. XXXXXXXXXX is insured by XXXXXXXXXX (the "Insurer").
5. The Plaintiff has reached a settlement with the Defendants and the Insurer (collectively, the "Releasees") with respect to the Plaintiff claims, subject to receipt of a favourable income tax ruling with respect to the Structure Payments (defined in paragraph 6 below) under the settlement.
6. The terms of the Settlement Agreement and Release provide, among other consideration, for the payment to the Plaintiff of XXXXXXXXXX monthly payments of $XXXXXXXXXX, without indexation, commencing on XXXXXXXXXX and continuing on the first day of each and every month thereafter through XXXXXXXXXX (all of which monthly payments are guaranteed to be made, regardless of whether the Plaintiff is alive), plus lump sum payments of $XXXXXXXXXX each due on XXXXXXXXXX and XXXXXXXXXX (which lump sum payments are guaranteed to be made on their due dates, regardless of whether the Plaintiff is alive) (collectively, the "Structure Payments").
7. The obligation to make the Structure Payments will be met by the Insurer. In consideration of the Insurer making the Structure Payments (and the Insurer providing certain non-structure consideration called for in the Settlement Agreement and Release), the Plaintiff has agreed to settle XXXXXXXXXX claims against the Releasees. The Insurer will not, however, be released and discharged from making the Structure Payments until same are paid. [Each payment made by the relevant underwriting annuity issuer (identified in paragraph 8 below) shall operate as a pro tanto release and discharge of the Insurer's corresponding Structure Payment obligation.]
8. 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.
9. The Insurer will be the owner and annuitant (beneficiary) of the Annuity Contracts, however, the Insurer will execute an irrevocable direction in respect of the Annuity Contracts directing the Annuity Issuers to make the payments thereunder, as follows:
(i) to the Plaintiff; or
(ii) in the event of the Plaintiff's death before the end of the guarantee period, to such secondary payee(s) as the Plaintiff, while XXXXXXXXXX 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
10. The Plaintiff proposes to enter into the Settlement Agreement and Release containing, among other matters, the provisions set forth in paragraphs 6, 7, 8 and 9 above.
11. Notwithstanding the above, no payments under 6 above shall be made prior to the date of this ruling.
Purpose of the Proposed Transaction
12. The purpose of the proposed transaction is to settle the claims for damages of the Plaintiff against the Releasees, 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(s) 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
Reorganizations 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, 2013
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, 2013
Email this Content