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
Would it be acceptable to provide for commutation in a structured settlement where the plaintiff dies and the beneficiary is the casualty insurer and the remaining interest has to be assigned by the owner (the owner of the annuity is the assignee) to the casualty insurer with commutation rights.
Position TAKEN
No answer given
Reasons FOR POSITION TAKEN
Not enough information
E9717705
IC-706R3
ATR-68
XXXXXXXXXX 2000-001852
C. Tremblay
Attention: XXXXXXXXXX
June 26, 2000
Dear XXXXXXXXXX:
This is in reply to your letter of March 31, 2000, wherein you ask us for our opinion on commutation and assignment issues dealing with structured settlements. You state that occasionally, a structured settlement is implemented where the parties agree that the periodic payments will go to the plaintiff as long as he/she remains alive but, in the event of the premature death of the plaintiff, will revert to the payor. You would like us to confirm that it will not be offensive to the Canada Customs and Revenue Agency ("CCRA") to allow the reversion with commutation privileges if the structured settlement is assigned. That is, the reversion will not go to the owner of the annuity (which is the assignee), but will go back to the original funding agency of the annuity, which may be an off-shore insurer, a self-insured, or a comparable entity.
CCRA's position regarding structured settlements is described in paragraph 5 of Interpretation Bulletin IT-365R2. As you are aware, our Directorate has issued advance income tax rulings on certain variations to those requirements described in the Bulletin. For example, our Directorate accepted the concept of absolute assignment as well as the potential for commutation of a portion of the annuity under those circumstances described in Advance Income Tax Ruling ATR-68, Structured Settlements. However, we are not prepared to expand on these positions without the benefit of reviewing a live situation where we have been given the opportunity to review all the relevant documentation. In this regard, we will give due consideration to this issue if it is received in the form of a request for an advance income tax ruling. We should point out, however, that since the issue involves the assignment of the remaining interest from the original assignee to the original casualty insurer, such a request for an advance income tax ruling would have to include an analysis of the tax implications to the assignee and the casualty insurer with respect to the commutation and assignment of annuity contracts. The advance income tax ruling request should also provide a detailed explanation as to the purpose of each step in the proposed structured settlement.
We trust our comments are of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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