1999 Ruling 9918263 - STUCTURED SETTLEMENT RULING

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.

XXXXXXXXXX 991826

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

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 the 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 is, in an earlier return of the taxpayer or a related person, 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 or is under objection by the taxpayer or a related person and is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired.

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 was a passenger in a motor vehicle, that was involved in an accident. The Claimant was severely injured as a result of this accident.

3. The Claimant commenced an action (Action No. XXXXXXXXXX) in the Court of Queen's Bench of XXXXXXXXXX, against the persons named therein (the "Defendants"). The insurer involved isXXXXXXXXXX (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. (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) the sum of $XXXXXXXXXX together with costs in the sum of $XXXXXXXXXX;

ii) Commencing XXXXXXXXXX, lifetime monthly payments of $XXXXXXXXXX, increasing by XXXXXXXXXX% compounded annually, with a guarantee period of XXXXXXXXXX years, and

iii) Guaranteed lump sum payments of

XXXXXXXXXX

(b) 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 or named beneficiaries.

6. The Insurer has assigned its rights and obligations to provide for the periodic payments as set out in the settlement to XXXXXXXXXX (the "Second Insurer").

7. The Second Insurer proposes to fund its obligation to make the payments described in paragraph 5(a)(ii) and (iii) above by the purchase of a single premium annuity contract issued by XXXXXXXXXX ("Lifeco"). The annuity contract will be non-commutable, non-assignable, and non-transferable.

8. The owner and the annuitant (beneficiary) under the annuity contract will be the Second Insurer. However, an irrevocable direction will be executed in respect of the annuity contract directing Lifeco to make the payments in accordance with paragraph 5(a)(ii) and (iii) above.

9. The Second Insurer will be responsible for making, or cause to be made, all payments as described in the settlement and will be released from its obligations on a pro tanto basis as each payment is made.

Proposed Transaction

10. The Claimant proposes to execute the terms of the settlement arrangement containing amongst 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 Defendant in respect of the injuries of the Claimant and to provide compensation for the payment of damages in respect of such claim.

Ruling 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 "Settlement Agreement and Release" is substantially the same as the document provided to us, 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 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, 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, Taxation and is binding on the Department provided the 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