2015-0621341R3 Structured Settlement

Principal Issues: Will the payments to be received pursuant to the structured settlement agreement be taxable in the claimant's hands under the circumstances described?

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

Author: XXXXXXXXXX
Section: 56(1)(d)

XXXXXXXXXX                                      2015-062134

XXXXXXXXXX, 2015

Dear XXXXXXXXXX:

Re:   Advance Income Tax Ruling
        Structured Settlement
        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, 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 not expired; or

e)    the subject of a ruling previously issued to the Plaintiff or a related person.

Our understanding of the facts, purpose of the proposed transaction and proposed transaction is as follows:

1.    The Plaintiff was born on XXXXXXXXXX and presently resides in the XXXXXXXXXX, in the XXXXXXXXXX. The Plaintiff’s mailing address XXXXXXXXXX.

2.    The Plaintiff’s tax services office is the XXXXXXXXXX Taxation Services Office and her taxation centre is the XXXXXXXXXX Taxation Centre.

3.    On or about XXXXXXXXXX, the Plaintiff was a XXXXXXXXXX, when the vehicle was struck XXXXXXXXXX (the “Accident”), which Accident resulted in severe, permanent personal injuries, damages and loss to the Plaintiff and derivative damages to XXXXXXXXXX (the “Derivative Plaintiff”).

4.    The Plaintiff, by her Litigation Representative, and the Derivative Plaintiff commenced an action in the XXXXXXXXXX (the “Action”), against XXXXXXXXXX (the “Defendants”).

5.    XXXXXXXXXX

6.    The Plaintiff and the Derivative Plaintiff have reached a settlement (“Settlement Agreement”) with the Defendants, XXXXXXXXXX (collectively, the “Releasees”) with respect to the Plaintiff’s and the Derivative Plaintiff’s claims, subject to receipt of a favourable income tax ruling with respect to the Structure Payments (defined in paragraph 7 below) under the settlement.

7.    The terms of the settlement provide, among other consideration, for the periodic payments to the Plaintiff of lifetime monthly payments starting at $XXXXXXXXXX, indexed at XXXXXXXXXX% per annum, compounded, commencing on XXXXXXXXXX and continuing to be made on the XXXXXXXXXX day of each and every month thereafter guaranteed for XXXXXXXXXX years through to XXXXXXXXXX, and payable thereafter for so long as the Plaintiff is alive, the (“Structure Payments”).

8.    The obligation to make the Structure Payments will be met by XXXXXXXXXX. In consideration of XXXXXXXXXX making the Structure Payments (XXXXXXXXXX), the Plaintiff, her Litigation Representative, and the Derivative Plaintiff have agreed to settle their claims against the Releasees. XXXXXXXXXX will not, however, be released and discharged from making the Structure Payments until same are paid. Each payment made by the underwriting Annuity Issuer (identified in paragraph 8 below) shall operate as a pro tanto release and discharge of XXXXXXXXXX corresponding Structure Payment obligation.

9.    XXXXXXXXXX proposes to fund the Structure Payments by the purchase of a single premium annuity contract (the “Annuity Contract”) issued by XXXXXXXXXX (the “Annuity Issuer”). The Annuity Contract will be non-assignable, non-commutable and non-transferable.

10.   XXXXXXXXXX will be the owner and annuitant (beneficiary) of the Annuity Contract, however, XXXXXXXXXX will execute an irrevocable direction in respect of the Annuity Contract directing the Annuity Issuer to make the payments thereunder, as follows:

i.    XXXXXXXXXX

in the event of the Plaintiff’s death before the end of the XXXXXXXXXX year guarantee period, then payments will go to XXXXXXXXXX, and upon XXXXXXXXXX death then equally to XXXXXXXXXX, with right of survivorship or to such secondary payee(s) as XXXXXXXXXX, while she remains alive, may subsequently direct in writing, from time to time, to the Annuity Issuer, provided that in the absence of such direction or if there is no secondary payee living at the time of XXXXXXXXXX death, to the XXXXXXXXXX, and provided further that any such direction shall only be effective if it is in writing and in a form acceptable and delivered to the Annuity Issuer.

Proposed Transaction

The Plaintiff and her Litigation Representative propose to enter into the Structured Settlement Release containing, among other matters, the provisions set forth in paragraphs 6, 7, 8, 9 and 10 above.

Purpose of the Proposed Transaction

The purpose of the proposed transaction is to settle the claims for damages of the Plaintiff and the Derivative Plaintiff against the Releasees, and to provide for the payment of damages in respect of such claims.

Ruling Given

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 Settlement Agreement and Release 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 paragraph 7 above, which will be received by the Plaintiff, or, in the event of the Plaintiff’s death before the end of the guarantee period, by her named secondary payee(s) or her Estate, as the case may be, will not be subject to tax under any provision of the Income Tax Act (Canada), R.S.C., 1985, c.1 (5th Supp.) (the “Act”) as it presently reads.

The above advance income tax ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R6 Advance Income Tax Rulings, dated August 29, 2014, and are binding on the Canada Revenue Agency provided that the Settlement Agreement and Release is executed on or before XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account any proposed amendments to the Act which, if enacted, could have an effect on the ruling provided herein.

Yours truly,

XXXXXXXXXX
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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