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 (a pedestrian) was injured when XXXXXXXXXX was struck by a motor vehicle. The individual sustained personal injuries. The individual commenced an action against the owner of the vehicle. Pursuant to an out-of-court settlement, the owner's insurer has agreed to make a lump sum payment and 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:
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 970415
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1997
Dear Sirs:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX, wherein you requested 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 XXXXXXXXXX.
2.On XXXXXXXXXX, the Claimant, while crossing a street, sustained personal injuries when XXXXXXXXXX was struck by a motor vehicle.
3.The Claimant commenced an action (XXXXXXXXXX) in the Court of Queen's Bench of XXXXXXXXXX against XXXXXXXXXX (the Defendants). The insurer of the vehicle involved in the accident was XXXXXXXXXX (Insurer A).
4.The Claimant has now reached an out-of-court settlement with the Defendants 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.
5.(a)The terms of settlement in respect of damages for personal injury, provide, among other matters, for payment to the Claimant of the following:
(i)A lump sum payment of $XXXXXXXXXX; and
(ii)Effective XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX with indexing at 2% per annum and a guarantee period of XXXXXXXXXX years.
(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 or XXXXXXXXXX named beneficiaries.
6.Insurer A will make the payment referred to in 5(a)(i) above.
7.The obligation to make the payments in 5(a)(ii) above will be met by XXXXXXXXXX (Insurer B) by virtue of an assignment by Insurer A with respect to its obligations to those payments. The Claimant will consent to the assignment and assumption. In consideration of Insurer B making such payments, the Claimant settles XXXXXXXXXX claim against the Defendants. Insurer B will not, however, be released and discharged from making the payments in 5(a)(ii) 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.
8.Insurer B proposes to fund its obligation to make the payments in 5(a)(ii) above by the purchase of an annuity contract issued by XXXXXXXXXX (Lifeco). The annuity contract will be non-commutable, non-assignable and non-transferable.
9.The owner and annuitant (beneficiary) under the annuity contract will be Insurer B. 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.
10.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
11.The Claimants 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
12.The purpose of the proposed transaction is to settle the claim for damages of the Claimant against the Defendants and Insurer A 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 Structured Settlement Agreement and Release 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, XXXXXXXXXX estate, or named beneficiaries, 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 the Revenue Canada, and is binding on the Department provided the Structured Settlement Agreement and Release 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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