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 taxpayer was operating an automobile which was involved in a single vehicle accident when the axle broke. The taxpayer and XXXXXXXXXX who was a passenger in the vehicle being operated by the taxpayer, sustained personal injuries. The taxpayer and XXXXXXXXXX (The Plaintiffs) commenced an action against the owner (XXXXXXXXXX) of the vehicle being operated by the taxpayer. The insurer who will be required to make periodic payments to the Plaintiffs, will assign its obligations to a casualty insurer.
The issue is the income tax treatment of the periodic payments in the hands of the Plaintiffs or the respective estate.
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 paragraphs 3 and 5 of IT-365R2.
953143
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letters of XXXXXXXXXX with enclosures wherein you request an advance income tax ruling on behalf of the above-named taxpayers with respect to proposed structured settlements for damages arising out of personal injuries suffered by the taxpayers.
You describe the facts and proposed transactions as follows:
Statement of Facts
1. XXXXXXXXXX
2.On or about XXXXXXXXXX was involved in a single vehicle accident when the rear axle of the vehicle XXXXXXXXXX was operating broke. The accident occurred XXXXXXXXXX The vehicle was owned by
XXXXXXXXXX
were passengers in the vehicle at the time of the accident. As a consequence of the accident, XXXXXXXXXX sustained severe personal injuries. XXXXXXXXXX died as a result of injuries he sustained in the accident.
3.(a)
XXXXXXXXXX
(b) Pursuant to the out-of-court settlement referred to in 4 below, XXXXXXXXXX will not be parties thereto. However, the action in 3(a) above will be discontinued pursuant to the settlement. Hereinafter, the remaining defendants ( XXXXXXXXXX) in respect of that action will be referred to as the Defendants.
4.The Plaintiffs have now reached an out-of-court settlement with the Defendants with respect to their claims subject to receipt of a favourable advance income tax ruling with respect to the payments under the settlement described in 5 below.
5.The terms of the settlement provide, among other matters, for the following payments to be made:
(b) to the Plaintiff, XXXXXXXXXX lifetime monthly payments, commencing on XXXXXXXXXX of $XXXXXXXXXX with indexing at 3% annually and a guarantee period of 20 years; and
(c) to the Plaintiff, XXXXXXXXXX lifetime monthly payments, commencing on XXXXXXXXXX of $XXXXXXXXXX with indexing at 3% annually and a guarantee period of 40 years.
Should XXXXXXXXXX die prior to the time that all the respective guaranteed payments have been made, the balance of such payments will be payable to the respective estate.
6.The obligation to make the payments in 5 above will be met by the XXXXXXXXXX by virtue of an absolute assignment by the Insurer with respect to its obligations to make those payments and the assumption of those obligations by XXXXXXXXXX The Plaintiffs will consent to the assignment and assumption. In consideration of XXXXXXXXXX making such payments, the Plaintiffs settle their claims against the Defendants. XXXXXXXXXX will not, however, be released and discharged from making such payments 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.XXXXXXXXXX proposes to fund its obligations to make the payments in 5 above by the purchase of annuity contracts issued by XXXXXXXXXX Each annuity contract will be non-commutable, non-assignable and non-transferable.
8.The owner and annuitant (beneficiary) under each annuity contract will be XXXXXXXXXX however, an irrevocable direction will be executed in respect of each annuity contract directing the issuer to make the payments to the respective Plaintiff or the respective Plaintiff's estate, as the case may be.
9.You have advised and you confirm to the best of your knowledge that none of the issues involved in this ruling request is being considered by a Tax Services office or a Tax Centre in connection with a tax return already filed and none of the issues is under objection.
Proposed Transaction
10.The Plaintiffs propose 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
11.The purpose of the proposed transaction is to settle the claim for damages of the Plaintiffs against the Defendants 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 Settlement Agreement and Absolute Assignment are substantially the same as the documents submitted with your letter of December 22, 1995 and that the transaction is carried out as described herein, we confirm that the payments set forth in paragraph 5 above which will be received by XXXXXXXXXX as the case may be, will not be subject to tax in their hands under any provision of the Income Tax Act (Canada), as it presently reads.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992 issued by the Department of National Revenue, Taxation and is binding on the Department provided the Settlement Agreement and Absolute Assignment are executed on or before XXXXXXXXXX.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation 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, 2096
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, 2096
Email this Content