McKellar Structured Settlements Inc.Periodic Payment of Damages and CPI
Periodic Payment of Damages and CPI
Media Release - December 2, 1997
Canada Revenue Agency ("CRA")
APPROVES:
a) Court-Ordered Periodic Payment of Damages
b) CPI-Linked Indexing
McKellar Structured Settlements is pleased to confirm that we have obtained, through our tax counsel, a CRA Technical Interpretation dealing with the captioned subjects.
First, CRA confirms that an Order for the periodic payment of personal injury damages pursuant to Section 116 of the Courts of Justice Act, shall constitute a valid, tax-free structured settlement.
Second, the Technical Interpretation confirms that a structure which provides payments which are linked to the CPI (Consumer Price Index) in addition to a fixed index rate of, say, 3%, will comply with Interpretation Bulletin IT365R2 and will therefore be acceptable to CRA.
Since it is likely that, where the Court applies Section 116, the Order will probably direct that the periodic payments be CPI-linked, all involved parties may be satisfied that such periodic payments would qualify as a tax-free structured settlement pursuant to Interpretation Bulletin IT365R2.
CPI-linked structures are currently an ideal means of satisfying concerns about future inflation, since the annuity is adjusted annually in accordance with the Consumer Price Index as published by Statistics Canada. Given the low level of inflation at this time and the resulting high real rate of return, CPI-linked annuities are currently very attractively priced, yet offer plaintiffs long-term protection against inflation. Payments will not be capped in periods of high inflation, nor will they be reduced in periods of deflation.
We would be pleased to receive any questions or comments you may have.
