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:
Two individuals were injured in a vehicle accident when it was involved in an accident with another vehicle. The individuals sustained personal injuries. As the operator of the other vehicle was underinsured, the two individuals commenced an action against their own insurer (the Insurer). Pursuant to an out-of-court settlement, the Insurer has agreed to make certain periodic payments jointly to the individuals while they are alive and to the survivor during his or her lifetime. As there is a XXXXXXXXXX year guarantee period, payments might be made to the estate of the last survivor of the two individuals.
The issue is the income tax treatment of the periodic payments in the hands of the Individuals or the estate of the last survivor.
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.
XXXXXXXXXX 963138
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
Structured Settlement
XXXXXXXXXX
We are replying to your letters of XXXXXXXXXX, wherein you request an advance income tax ruling on behalf of XXXXXXXXXX with respect to a proposed structured settlement for damages arising out of personal injuries suffered by them.
Our understanding of the facts and proposed transactions is as follows:
Statement of Facts
1.XXXXXXXXXX, were respectively born on XXXXXXXXXX They reside in XXXXXXXXXX.
2.On XXXXXXXXXX, the Claimants sustained personal injuries in an accident.
3.The Claimants commenced an action in the Court of Queen's Bench of XXXXXXXXXX against XXXXXXXXXX (the Insurer) for damages as a result of the personal injuries sustained in the accident.
4.The Claimants have now reached an out-of-court settlement with the Insurer with respect to their claim 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 settlement in respect of damages for personal injury, provide, among other matters, for the payment to the Claimants jointly
(i)of a lump sum of $XXXXXXXXXX and,
(ii)for as long as they are both alive, of monthly payments (non-indexed), commencing on XXXXXXXXXX of $XXXXXXXXXX Subsequent to the death of either of the Claimants, the monthly payments will be made to the surviving Claimant during his or her lifetime. The monthly payments are subject to a guarantee period of XXXXXXXXXX years. Should the survivor die prior to the time that all the guaranteed payments have been made, the balance of such payments will be payable to his or her estate.
6.The obligation to make the payment in 5 above will be met by the Insurer. In consideration of the Insurer making such payments, the Claimants settle their claim against the Insurer. The Insurer will not, however, be released and discharged from making the payments in 5(ii) 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 in 5(ii) above by the purchase of annuity contracts issued by 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 5(ii) above.
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 Claimants 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
11.The purpose of the proposed transaction is to settle the claim for damages of the Claimants against the Insurer in respect of the injuries of the Claimants 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 are 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 Claimants jointly, the payments that will be received by the survivor of the two Claimants, and the payments that may be received by the estate of the last surviving Claimant, 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, and is binding on the Department provided the Minutes of Settlement agreement is executed on or before XXXXXXXXXX.
Yours truly,
for Director
Business and Publications 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, 1995
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, 1995
Email this Content