1999 Ruling 9916623 - STRUCTURED 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 991662

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. As a result of the accident, the Claimant sustained severe personal injuries.

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 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 the 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 lump sum of $ XXXXXXXXXX together with costs in the sum of XXXXXXXXXX; and

ii) 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.

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(a)(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 payment.

7. The Insurer proposes to fund its obligation to make the payments described in paragraph 5(a)(ii) above by the purchase of a single premium annuity contract issued by the 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 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) above.

Proposed Transaction

9. 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

10. 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 Minutes of 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, 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 Minutes of Settlement 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