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 plaintiff's hands?
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 2023-100223
XXXXXXXXXX, 2024
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX (the “Plaintiff”)
This is in reply to your correspondence on XXXXXXXXXX, in which you request an Advance Income Tax Ruling on behalf of the Plaintiff with respect to the proposed structured settlement for damages out of personal injuries suffered by the Plaintiff. We also acknowledge the information provided in a subsequent correspondence, on XXXXXXXXXX, in connection with your request.
We understand that, to the best of your knowledge and that of the Plaintiff involved, none of the issues involved in the Ruling request are:
a. in a previously filed tax return of the Plaintiff or a related person and:
a. being considered by the CRA in connection with such return;
b. under objection by the Plaintiff or a related person; or
c. the subject of a current or completed court process involving the Plaintiff or a related person; or
b. the subject of a Ruling request previously considered by the Income Tax Rulings Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”) and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Statement of Facts
1. The Plaintiff was born on XXXXXXXXXX and presently resides in the City of XXXXXXXXXX.
2. The Plaintiff’s tax service office is the XXXXXXXXXX.
3. On or about XXXXXXXXXX, the Plaintiff was a pedestrian walking in XXXXXXXXXX, when near or at the intersection of XXXXXXXXXX the Plaintiff was hit by a XXXXXXXXXX (the “Vehicle”) operated by XXXXXXXXXX (the “Accident”), which Accident resulted in severe, permanent personal injuries, damages and loss to the Plaintiff.
4. The Plaintiff commenced an action in the Supreme Court of XXXXXXXXXX (the “Action”) against XXXXXXXXXX and the Lessor of the Vehicle, XXXXXXXXXX (collectively, the “Defendants”).
5. The Plaintiff was insured by XXXXXXXXXX.
6. The Plaintiff has reached a settlement with the Defendants, XXXXXXXXXX (collectively, the “Releasees”) with respect to the Plaintiff’s claims, subject to receipt of a favourable income tax ruling with respect to the Structure Payments (defined in paragraph 7, below) under the settlement.
7. The terms of the settlement provide, among other consideration, for the periodic payments to the Plaintiff of monthly payments, starting at $XXXXXXXXXX, indexed at XXXXXXXXXX% per annum, compounded, commencing on XXXXXXXXXX and continuing to be made on the XXXXXXXXXX day of each and every month thereafter for a period of XXXXXXXXXX years and XXXXXXXXXX months (the “Structure Payments”). The terms of the settlement do not provide for any amounts to be paid to the Plaintiff for post-judgement interest.
8. The obligation to make the Structure Payments will be met by XXXXXXXXXX. In consideration of XXXXXXXXXX making the Structure Payments (and XXXXXXXXXX providing certain non-structure consideration called for in the Structured Settlement Release), the Plaintiff has agreed to settle his claims against the Releasees. XXXXXXXXXX will not, however, be released and discharged from making the Structure Payments until same are paid. Each payment made by the underwriting Annuity Issuer (identified in paragraph 9, below) shall operate as a pro tanto release and discharge of XXXXXXXXXX corresponding structure payment obligation.
9. XXXXXXXXXX proposes to fund the Structure Payments by the purchase of a single premium annuity contract (the “Annuity Contract”) issued by XXXXXXXXXX (the “Annuity Issuer”). The Annuity Contract will be non-assignable, non-commutable and non-transferable.
10. XXXXXXXXXX will be the owner and annuitant (beneficiary) of the Annuity Contract, however, XXXXXXXXXX will execute an irrevocable direction in respect of the Annuity Contract directing the Annuity Issuer to make the payments thereunder, as follows:
a. to XXXXXXXXXX, Plaintiff; or
b. in the event of the Plaintiff’s death before the end of the XXXXXXXXXX-year guarantee period, then payments will go to his Estate, or to such secondary payee(s) as XXXXXXXXXX, while he remains alive, may subsequently direct in writing, from time to time, to the Annuity Issuer, provided that in the absence of such direction or if there is no secondary payee living at the time of XXXXXXXXXX, 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 Issuer.
Proposed transaction
11. The Plaintiff proposes to sign the Structured Settlement Release containing, among other matters, the provisions set forth in paragraphs 7, 8, 9 and 10, above.
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.
13. The Plaintiff consents to the release of the ruling in severed form to the public. The information to be deleted from the text of the ruling will be the name, address and identifying social insurance number of the Plaintiff, the names of the Releasees, and the particulars of the Accident and the Action.
Rulings given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the Structured Settlement Release is substantially the same as the documents provided to us, as reflected herein, and that the proposed transactions are carried out as described herein, we confirm that the Structure Payments, as set forth in paragraph 7 above, which will be received by the Plaintiff, or, in the event of the Plaintiff’s death 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 under any provision of the Income Tax Act (Canada), R.S.C., 1985, c.1 (5th Supp.) as it presently reads.
The Rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R12, Advance Income Tax Rulings and Technical Interpretations, dated April 1, 2022, and are binding on the Canada Revenue Agency provided that the proposed transactions are completed within 6 months of the date of this letter.
Your truly,
XXXXXXXXXX
Manager, Tax Credits and Ministerial Issues
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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