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:
The Claimant sustained severe personal injuries as a result of a swimming pool accident. The Claimant commenced an action against various defendants. Pursuant to an out-of-court settlement, the defendants' insurer will agree to make periodic payments to the Claimant, and if the Claimant dies within the guarantee period, to the Claimant's estate.
The issue is the income tax treatment of the periodic payments.
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
XXXXXXXXXX 981288
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1998
Dear Sirs:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX (the "Claimant")
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.
To the best of your knowledge, and that of the taxpayer involved, none of the issues contained herein:
(i) is in an earlier return of the taxpayer or a related person;
(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;
(iii) is under objection by the taxpayer or a related person; and
(iv) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired.
Unless otherwise stated all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act").
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. The Claimant sustained severe personal injuries (including quadriplegia) as a result of a swimming pool accident on or about XXXXXXXXXX.
3. The Claimant commenced an action in the XXXXXXXXXX Court (General Division) against the persons named therein (the "Defendants"). The insurer involved is XXXXXXXXXX (the "Insurer").
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 paragraph 5 below.
5. The terms of settlement in respect of damages for personal injury, provide, among other matters, for payment, commencing on XXXXXXXXXX, to the Claimant, of lifetime monthly payments of $XXXXXXXXXX with a guarantee period of 30 years and indexing on January 1 of each year based on the Consumer Price Index for Canada for the 12 month period ending on October 1 of the preceding year. Should the Claimant die prior to the time that all the guaranteed payments are made, the balance of the payments will be payable to the Claimant's estate.
6. The obligation to make the payments described in paragraph 5 above will be met by the Insurer. In consideration of the Insurer making such payments, the Claimant settles the claim against the Defendants. The Insurer will not, however, be released and discharged from making the payments described in paragraph 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 Insurer proposes to fund its obligation to make the payments described in paragraph 5 above by the purchase of two single premium annuity contracts issued by the XXXXXXXXXX ("Lifeco A") and XXXXXXXXXX ("Lifeco B"). The annuity contracts will be non-commutable, non-assignable and non-transferable.
8. The owner and annuitant (beneficiary) under the annuity contracts will be the Insurer. However, an irrevocable direction will be executed in respect of each annuity contract directing Lifeco A and Lifeco B to make the payments in accordance with paragraph 5 above.
Proposed Transaction
9. 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
10. 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 Minutes of Settlement agreement is 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 the Claimant's estate, as the case may be, will not be subject to tax in their hands under any provision of the Act, 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 agreement is executed on or before XXXXXXXXXX.
The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
- 1 -
.../cont'd
- 1 -
.../cont’d
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1997
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1997
Email this Content