15 April 1997 External T.I. 9804585 - damages awards

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:

1. Paragraph 5(b) of IT-365R2 (one of the conditions of a structured settlement) states that "the claimant and the casualty insurer must have reached agreement under which the latter is committed to make at least periodic payments to the claimant for either a fixed term or the life of the claimant." When a court, pursuant to the Courts of Justice Act, orders that damages in respect of personal injury or death be paid in periodic payments and the arrangement otherwise satisfies the conditions in paragraph 5 of IT-365R2, will the arrangement qualify as a structured settlement?

Position:

1. Yes. However, as is the case with all structured settlements, there is the concern that the claimant may be entitled to a lump sum which is then used to purchase the related annuity contract. The relevant circumstances can be considered on an advance income tax rulings basis.

Reasons:

1. This position is consistent with the Department's position that damages in respect of personal injury or death can be paid in the form of periodic payments. However, it is a question of fact whether it is an arrangement described in paragraph 5 of IT-365R2. This is particularly the case with a court ordered arrangement as the court process can involve lump sum payments.

980458
XXXXXXXXXX M. Eisner

Attention: XXXXXXXXXX

April 15, 1998

Dear XXXXXXXXXX:

Re: Income from Personal Damages Awards - Structured Settlements

This is in reply to your letter of February 18, 1998 in which you referred to our letter of November 13, 1997 (971919) on the above-noted subject and set out a further concern.

The letter involved paragraph 5(b) of Interpretation Bulletin IT-365R2 "Damages Settlement and Similar Payments" and clause 116(1)(a) of the Courts of Justice Act (Ontario), R.S.O 1990, Chap. C. 43 (the "Justice Act").

You have now raised an identical concern with respect to clause 116(1)(b) of the Justice Act, which you enclosed, and have asked us to confirm that the comments made in our letter of November 13, 1997 on clause 116(1)(a) of the Justice Act are also applicable to a structured payment scheme under clause 116(1)(b) of the Justice Act.

We hereby confirm that the comments also apply to clause 116(1)(b) of the Justice Act. Pursuant to Information Circular 70-6R3, we are also prepared to consider a specific fact situation on an advance income tax rulings basis.

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,

Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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