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:
An individual was injured when the vehicle, which XXXXXXXXXX was operating, was involved in an accident with another vehicle. The individual sustained personal injuries. The individual commenced an action against the owner of the other vehicle. In addition, the individual commenced an action against XXXXXXXXXX own insurer which had issued an insurance policy that had covered the individual in respect of no-fault benefits. Pursuant to an out-of-court settlement, the individual's insurer and the insurer of the other vehicle have agreed to make certain periodic payments to the individual.
The issue is the income tax treatment of the payments in the hands of the individual or XXXXXXXXXX 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:
Consistent with the position in 940504 (no-fault benefits) and the Department's position in paragraphs 3 and 5 of IT-365R2, the periodic payments are considered to be in the nature of non-taxable damages.
XXXXXXXXXX 964156
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sir or Madam:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letters of XXXXXXXXXX, concerning your request for an advance income tax ruling on behalf of XXXXXXXXXX with respect to a proposed structured settlement for damages arising out of personal injuries suffered by XXXXXXXXXX.
Our understanding of the facts and proposed transactions is as follows:
Statement of Facts
1.XXXXXXXXXX (the Claimant) was born on XXXXXXXXXX, and presently resides in XXXXXXXXXX.
2.On or about XXXXXXXXXX, the Claimant sustained personal injuries in a motor vehicle accident.
3.The Claimant commenced an action in the XXXXXXXXXX Court (General Division) against XXXXXXXXXX. (herein referred to as the Defendants). The Defendants are insured by XXXXXXXXXX (Insurer A). The Claimant also commenced an action in the XXXXXXXXXX Court (General Division) against XXXXXXXXXX (Insurer B) who insured the Claimant in respect of no-fault benefits.
4.The Claimant has now reached an out-of-court settlement with the Defendants and Insurers A and B with respect to XXXXXXXXXX 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 the settlement provide, among other matters, for direct payment, in respect of damages for personal injury, to the Claimant of the following:
(i)Commencing as of XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX, with a guaranteed period of XXXXXXXXXX years;
(ii)Commencing as of XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX, with a guaranteed period of XXXXXXXXXX years;
(iii)A lump sum guaranteed payment of $XXXXXXXXXX
(b)Should the Claimant 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(a)(i) above will be met by Insurer B and the obligation to make the payments in 5(a)(ii) and (iii) above will be met by Insurer A. In consideration of Insurers A and B making such payments, the Claimant settles XXXXXXXXXX claims against the Defendants and Insurers A and B. Insurers A and B 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.Insurers A and B propose to fund their obligations to make the payments in 5 above, by the purchase of annuity contracts issued by XXXXXXXXXX (Lifeco). Each annuity contract will be non-commutable, non-assignable and non-transferable.
8.The owner and annuitant (beneficiary) under the annuity contract issued by Lifeco in respect of the payments described in 5(a)(i) will be Insurer B. The owner and annuitant (beneficiary) under the annuity contract issued by Lifeco in respect of the payments described in 5(a)(ii) and (iii), above will be Insurer A. However, an irrevocable direction will be executed in respect of each annuity contract directing Lifeco to make the payments directly to the Claimant, 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 has been given.
Proposed Transaction
10.The Claimant proposes 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 claims for damages by the Claimant against the Defendants and Insurers A and B, and to provide for the payment of damages in respect of such claim.
Ruling Given
Provided that the above-mentioned facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that the settlement agreement is 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 payments set forth in paragraph 5 above, which will be received by the Claimant or XXXXXXXXXX estate, as the case may be, will not be subject to tax 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 70-6R3 dated December 30, 1996, issued by Revenue Canada, and is binding on the Department provided the settlement agreement is 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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