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 (the Claimant) was injured when the vehicle, which XXXXXXXXXX was operating, was involved in an accident with another vehicle. The Claimant sustained personal injuries. The Claimant commenced an action against certain persons (the Defendants). Pursuant to an out-of-court settlement, the Defendants' insurers have agreed to pay an amount at the time the settlement is executed. In addition, an insurer has agreed to make certain periodic lifetime payments to the Claimant and, subsequent to XXXXXXXXXX death, to XXXXXXXXXX estate or named beneficiaries (i) during the lifetime of the Claimant's spouse or, (ii) during the guaranteed period of forty years if the Claimant and the Claimant's spouse die prior to the expiration of that time period.
The issue is the income tax treatment of the payments in the hands of the Claimant, XXXXXXXXXX estate, or the named beneficiary (or beneficiaries).
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 IT-365R2 (in particular paragraphs 3 and 5).
XXXXXXXXXX 971460
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 the Claimant with respect to a proposed structured settlement for damages arising out of personal injuries suffered by the Claimant.
Our understanding of the facts and proposed transactions is as follows:
Statement of Facts
1.The Claimant was born on XXXXXXXXXX, and currently resides in XXXXXXXXXX.
2.On or about XXXXXXXXXX, the Claimant sustained personal injuries in a motor vehicle accident.
3.(a)The Claimant commenced an action (XXXXXXXXXX) on XXXXXXXXXX (which was amended on XXXXXXXXXX), in the Court of Queen's Bench of XXXXXXXXXX against the persons named therein (herein referred to as the Defendants). The insurers involved are XXXXXXXXXX (Insurer A) and XXXXXXXXXX (Insurer B).
4.The Claimant has now reached an out-of-court settlement with the Defendants with respect to the 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 lifetime payments to the Claimant of the monthly sum of $XXXXXXXXXX (non-indexed), effective as of XXXXXXXXXX. You have confirmed that no payments will be made prior to the date of this ruling. Following the death of the Claimant, the monthly payments will continue to be made for so long as the Claimant's current spouse, XXXXXXXXXX (the Spouse), may live. The monthly payments are guaranteed to be made for a period of 40 years. If the Claimant does not survive for the guarantee period or if the Claimant is survived by the Spouse, the remaining payments shall be payable to the Claimant's estate or named beneficiaries.
(b)The terms of settlement, in respect of damages for personal injury, also provide for the payment to the Claimant of the amount of $XXXXXXXXXX, which will be made by Insurers A and B.
6.The obligation to make the payments in 5(a) above, will be met by Insurer B. The obligation to make the payment in 5(b), above will be met by Insurers A and B. In consideration of Insurers A and B making such payments, the Claimant settles the claim against the Defendants. Insurer B will not be released and discharged from making the payments in 5(a) 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.Insurer B proposes to fund its obligation to make the payments in 5(a) 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 Insurer B. However, an irrevocable direction will be executed in respect of the annuity contract directing Lifeco to make the payments in accordance with 5(a) above.
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.
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 Defendants 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, the Claimant's 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 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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