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:
Whether individuals who suffer from Hepatitis C and file a claim for damages can be regarded as having made a claim "in respect of personal injury or death" (one of the condition set out in paragraph 5 of IT-365R2).
Position:
Such a claim could satisfy that condition. However, it is necessary to review all the relevant facts and documentation to determine whether periodic payments are non-taxable by virtue of the general position in paragraph of IT-365R2.
Reasons:
The issue (nature of periodic payments) involves a question of fact.
971485
XXXXXXXXXX M. Eisner
Attention: XXXXXXXXXX
November 13, 1997
Dear Sirs:
Re: Structured Settlements
We are replying to your letter of June 2, 1997, concerning the above-noted subject. We apologize for the delay in replying.
Your concerns relate to paragraph 5 of Interpretation Bulletin IT-365R2 "Damages Settlements and Similar Receipts", which describes a "structured settlement" arrangement for the payment of damages in respect of personal injury or death. Pursuant to a structured settlement arrangement, non-taxable periodic payments can be paid to a claimant. Under paragraph 5(a) of IT-365R2, one of the conditions of a structured settlement is that "a claim for damages must have been made in respect of personal injury or death."
Your concerns relate to individuals that become infected with Hepatitis C, a blood borne pathogen that cannot be eliminated and results in inflammation of the liver. There are a number of stages with respect to the disease. The first stage is the acute stage in which inflammation of the liver occurs in certain circumstances (e.g., a person has the flu) and then subsides. Within about two years, a significant number of individuals who suffer at the acute stage, progress to the chronic stage, which can last for a very long time (one to three decades). During the chronic stage, other adverse medical consequences may occur (cirrhosis and cancer of the liver).
A majority of the individuals in the acute stage do not exhibit symptoms of the disease. This is also the case for some of the individuals who are in the chronic stage.
Pursuant to our telephone conversations on October 30 and November 4 (Eisner/XXXXXXXXXX), your concerns are whether the condition in paragraph 5(a) of IT-365R2 can be considered to have been satisfied when (i) a plaintiff has only exhibited the acute stages of the disease; and (b) a plaintiff suffers from the chronic stage of the disease.
With respect to both of your concerns, it is our view that a claim made by a plaintiff referred in (i) or (ii) above, could be regarded as having been made in respect of personal injury or death. A determination of whether periodic payments made to a plaintiff are non-taxable by virtue of the general position in paragraph 5 of IT-365R2 can only be made following a review of all the relevant facts and documentation including the claim and the settlement agreement. We are prepared to consider a specific fact situation involving a proposed transaction on an advance income tax rulings basis. The procedures for submitting an advance income tax ruling are set out in Information Circular 70-6R3.
We hope that our comments are of assistance, but would caution you that they do not constitute an advance income tax ruling, and accordingly, are not binding on the Department with respect to any particular transaction.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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