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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère. PRINCIPAL ISSUES:
The taxpayer (the Plaintiff) was a passenger in an automobile XXXXXXXXXX The Plaintiff sustained personal injuries. The Plaintiff commenced an action against the operator and the operator's employer (the Defendants). Pursuant to an out-of-court settlement, the Defendants' insurer has agreed to make certain periodic payments to the Public Trustee for the benefit of the Plaintiff, or the Plaintiff's estate.
The issue is the income tax treatment of the periodic payments in the hands of the Plaintiff or the Plaintiff's estate.
POSITION TAKEN:
We rule that the payments will not be taxable under any provision of the Income Tax Act as it currently reads.
REASONS FOR POSITION TAKEN:
The terms of the settlement are considered to be consistent with the Department's position set out in paragraphs 3 and 5 of IT-365R2.
XXXXXXXXXX 962170 XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling Structured Settlement XXXXXXXXXX (Individual A) XXXXXXXXXX XXXXXXXXXX (Individual B) XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX, wherein you request an advance income tax ruling on behalf of Individual A with respect to a proposed structured settlement for damages arising out of personal injuries suffered by the taxpayer.
You describe the facts and proposed transactions as follows:
Statement of Facts
1. Individual A was born on XXXXXXXXXX, and currently resides in XXXXXXXXXX with Individual B.
2. On or about XXXXXXXXXX, Individual A, Individual B, XXXXXXXXXX (Individual C), and XXXXXXXXXX (Individual D) XXXXXXXXXX were the occupants of a vehicle, XXXXXXXXXX (Company X) XXXXXXXXXX was being driven by XXXXXXXXXX (Individual E). As a result of the accident, Individual A sustained severe personal injuries, XXXXXXXXXX
3. Individual A by Individual B, and Individuals B and C (the Plaintiffs) commenced an action XXXXXXXXXX against Individual E and Company X (the Defendants). The Defendants are insured by XXXXXXXXXX (the Insurer).
4. The Plaintiffs have now reached an out-of-court settlement with the Defendants with respect to their claims subject to receipt of a favourable advance income tax ruling with respect to the payments under the settlement described in 5 below.
5. (a) The terms of settlement provide, among other matters, for payment, in respect of damages for personal injury, to XXXXXXXXXX(XXXXXXXXXX) for the benefit of Individual A, of the following:
(i) XXXXXXXXXX monthly lifetime payments of $XXXXXXXXXX and a guaranteed period of 20 years; XXXXXXXXXX
(ii) XXXXXXXXXX monthly lifetime payments XXXXXXXXXX and a guaranteed period of 20 years.
(b) Should Individual A die prior to the time that all the guaranteed payments have been made, the balance of such payments will be payable to XXXXXXXXXX estate.
6. The obligation to make the payments in 5 above, will be met by the Insurer. In consideration of the Insurer making such payments, the Plaintiffs settle their claims against the Defendants. The Insurer will not, however, be released and discharged from making such payments and each payment shall to the extent thereof and only to that extent, operate as a pro tanto release and discharge of the obligation to make such payments.
7. The Insurer proposes to fund its obligation to make the payments in 5 above by the purchase of annuity contracts issued by XXXXXXXXXX (Insurance Co. A) and XXXXXXXXXX (Insurance Co. B). The annuity contracts will be non-commutable, non-assignable and non- transferable.
8. The owner and annuitant (beneficiary) under each annuity contract will be the Insurer. However, an irrevocable direction will be executed in respect of each annuity contract directing Insurance Co. A and Insurance Co. B to make the payments directly to XXXXXXXXXX for the benefit of Individual A, or XXXXXXXXXX estate, as the case may be.
9. You have advised and you confirm, to the best of your knowledge, that none of the issues involved in this ruling request is being considered by a Tax Services office or a Tax Centre in connection with a tax return already filed and none of the issues is under objection. Further, you have confirmed that no payments will be made until the requested ruling is given.
Proposed Transaction
10. The Plaintiffs propose to execute the terms of the settlement arrangement containing, among other matters, the provisions set forth in paragraph 5 above.
Purpose of the Proposed Transaction
11. The purpose of the proposed transaction is to settle the claim for damages of the Plaintiffs against the Defendants and to provide for the payment of damages in respect of such claim.
Rulings Requested and Given
Provided that the above-mentioned facts and proposed transaction are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that the Minutes of Settlement are substantially the same as the document submitted with your letter of XXXXXXXXXX, and that the transaction is carried out as described herein, we confirm that the monthly payments described in paragraph 5 above, which will be received by the legal representative of Individual A, or the estate of Individual A, as the case may be, will not be subject to tax in their hands, or in the hands of Individual A, under any provision of the Income Tax Act (Canada), as it presently reads.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by the Department of National Revenue, Taxation, and is binding on the Department provided the Minutes of Settlement are executed on or before XXXXXXXXXX
Yours truly,
for Director Business and Publications Division Income Tax Rulings and Interpretations Directorate Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 1996
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© Sa Majesté la Reine du Chef du Canada, 1996
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