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.
Principal Issues: An individual (Plaintiff) who is a minor, suffered serious permanent injuries XXXXXXXXXX . The Plaintiff, XXXXXXXXXX , commenced an action against the defendants. Pursuant to an out-of-court settlement, the defendants will assign their rights and obligations to an assignment company who will purchase a single premium annuity contract with a life insurance company to provide the proposed periodic payments to be received under a structured settlement arrangement. The assignment company will direct the life insurance company to pay the periodic payments under the annuity contract to the Plaintiff or the Plaintiff's estate. Will such payments be taxable in the hands of the recipient?
Position: No
Reasons: The terms of the structured settlement are consistent with the CRA's position as set out in paragraph 5 of Interpretation Bulletin IT-365R2.
XXXXXXXXXX
2010-036286
XXXXXXXXXX 2010
Dear XXXXXXXXXX :
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX (the "Plaintiff")
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX , wherein you requested an advance income tax ruling on behalf of the Plaintiff with respect to the proposed structured settlement for damages arising out of personal injuries suffered by the Plaintiff.
We understand that, to the best of your knowledge, and that of the Plaintiff, XXXXXXXXXX , none of the issues described herein is:
a) in an earlier tax return of the Plaintiff or a related person;
b) being considered by a Tax Services Office or Taxation Centre in connection with a previously filed tax return of the Plaintiff or a related person;
c) under objection by the Plaintiff or a related person;
d) before the Courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; nor
e) the subject of a ruling previously issued.
Our understanding of the facts and proposed transaction is as follows:
Facts
1. The Plaintiff was born on XXXXXXXXXX and presently resides in XXXXXXXXXX in the Province of XXXXXXXXXX with his parents. The Plaintiff's mailing address is XXXXXXXXXX . The address of the Plaintiff's tax services office is XXXXXXXXXX , and his taxation centre is XXXXXXXXXX .
2. The Plaintiff XXXXXXXXXX. As a result, the Plaintiff has suffered serious permanent injuries including XXXXXXXXXX .
3. The Plaintiff, a minor, XXXXXXXXXX , in their personal capacities commenced an action, as amended, dated XXXXXXXXXX .
4. The Plaintiff, XXXXXXXXXX , has reached a settlement with the Defendants with respect to his claim, subject to receipt of a favourable income tax ruling with respect to the periodic payments under the settlement in accordance with the XXXXXXXXXX .
5. The terms of the settlement provide for periodic payments to or for the benefit of the Plaintiff consisting of lifetime monthly payments of $XXXXXXXXXX commencing XXXXXXXXXX indexed at a rate of XXXXXXXXXX % per year, compounded. The monthly payments are guaranteed to be made if the Plaintiff dies before receiving them for a XXXXXXXXXX -year period.
6. The obligation to make the periodic payments referred to in 5 above will be met by XXXXXXXXXX (the "Assignee") as assignee of the Defendants and the XXXXXXXXXX , pursuant to an assignment and assumption agreement (the "Assignment and Assumption Agreement"). The Plaintiff has agreed to consent to the assignment and assumption. In consideration of the Assignee making such periodic payments, the Plaintiff, XXXXXXXXXX , settles his claim against the Defendants. The Assignee will not, however, be released and discharged from making such periodic payments, for which the Assignee shall remain liable until paid, enjoying a pro tanto release and discharge of the obligation to make such payments to the extent of each payment.
XXXXXXXXXX
7. No payments will be made under the settlement until tax rulings are obtained from the Canada Revenue Agency (the "CRA") and XXXXXXXXXX .
8. The Assignee proposes to fund its obligation to make the periodic payments referred to in 5 above under the settlement by the purchase of a single premium annuity contract to be issued by XXXXXXXXXX (the "Issuer"). The annuity contract will be non-commutable, non-assignable and non-transferable.
9. The owner and annuitant (beneficiary) under the annuity contract will be the Assignee, however, an irrevocable direction will be executed in respect of the annuity contract directing the Issuer to make the annuity payments as follows:
i. during the Plaintiff's minority, XXXXXXXXXX , for the benefit of the Plaintiff;
ii. upon the Plaintiff attaining his majority on XXXXXXXXXX , to the Plaintiff in his own right, provided that he is capable thereat, failing which to such person(s) as may be appointed his XXXXXXXXXX for his benefit; or
iii. in the event of the Plaintiff's death before the end of the XXXXXXXXXX -year guarantee period, to the Estate of the Plaintiff.
Proposed Transaction
10. The Plaintiff, XXXXXXXXXX , proposes to enter into a settlement arrangement containing, among other matters, the provisions set forth in 5 above.
11. Notwithstanding the above, no payments under 5 above shall be made prior to the date of this ruling.
Purpose of the Proposed Transaction
12. The purpose of the proposed transaction is to settle the claim for damages of the Plaintiff against the Defendants and to provide for the payment of damages in respect of such claim.
Rulings Requested
Provided that the above-mentioned facts and proposed transaction are accurate and constitute complete disclosure of all the relevant facts and proposed transaction, that the XXXXXXXXXX and the Assignment And Assumption Agreement are substantially the same as the documents provided to us, as reflected herein, and that the proposed transaction is carried out as described herein, we confirm that the payments, as set forth in 5 above, which will be received XXXXXXXXXX , the Plaintiff or the estate of the Plaintiff, as the case may be, as set forth in 9 above, will not be subject to tax in their hands under any provision of the Income Tax Act (the "Act"), as it presently reads.
The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set forth in Information Circular 70-6R5, dated May 17, 2002, and is binding on the Canada Revenue Agency provided the Assignment And Assumption Agreement is executed on or before XXXXXXXXXX .
Yours truly,
XXXXXXXXXX
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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, 2010
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, 2010
Email this Content