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 proceeded to claim damages (no-fault benefits) from XXXXXXXXXX casualty insurer which had issued an insurance policy that covered the individual in respect of no-fault benefits. The individual and XXXXXXXXXX insurer have now agreed to an out-of-court settlement in respect of XXXXXXXXXX claim for future benefits. In this regard, the insurer has 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 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 970047
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letters of XXXXXXXXXX, in connection with 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 currently resides in.
2.On or about XXXXXXXXXX, the Claimant sustained personal injuries in a motor vehicle accident.
3.The Claimant's insurer with respect to the accident in 2 above, was XXXXXXXXXX (the Defendant) which insured the Claimant in respect of no-fault benefits. The Claimant has been receiving accident benefits as a result of XXXXXXXXXX injuries from XXXXXXXXXX no-fault insurer.
4.The Claimant has now reached an out-of-court settlement with the Defendant with respect to XXXXXXXXXX claim, subject to receipt of a favourable advance income tax ruling, with respect to the payments under the settlement described in 5 below. The out-of-court settlement relates to XXXXXXXXXX claim for future entitlements in respect of no-fault benefits.
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 with annual indexing at 3% and a minimum guaranteed period of XXXXXXXXXX years; and
ii)Lump sum guaranteed payments 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 above, will be met by XXXXXXXXXX (the Casualty Insurer) by virtue of an assignment by the Defendant with respect to its obligations to make those payments. The Claimant will consent to the assignment and assumption. In consideration of the Casualty Insurer making such payments, the Claimant settles XXXXXXXXXX claim against the Defendant. The Casualty Insurer will not be released and discharged from making the payments in 5 above, 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 Casualty Insurer proposes to fund its obligation to make the payments in 5 above by the purchase of an annuity contract issued by XXXXXXXXXX (Lifeco). The annuity contract will be non-commutable, non-assignable and non-transferable.
8.The owner and annuitant (beneficiary) under the annuity contract will be the Casualty Insurer. However, an irrevocable direction will be executed in respect of the 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 claim for damages of the Claimant against the Defendant in respect of the injuries of the Claimant 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 transactions 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 payments described 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 in their hands 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 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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