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.
MEMO FOR FILE
Meeting with: 19(1)
Subject: Structured Settlements — their letter of November 14, 1991
Individuals Present: Bryan Dath & Paul Fuoco
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19(1) raised two issues in his letter of November 14, 1991:
1. The possibility of adding an option to purchase an additional annuity with future lump sum payments provided for in the annuity contract under a structured settlement.
2. Absolute transfer of liability and ownership to a secondary insurer by a self-insurer or foreign-based insurer.
On the first issue the basic principles underlying the non-taxability of periodic payments under a structured settlement were explained to 19(1) The provision of an option for the plaintiff to have the lump sum payments under an annuity to be converted to another annuity would not be in accord with those principles and, accordingly, payments under this subsequent annuity would be included in the plaintiff's income. In our view, the exercise of the option by the plaintiff to convert such lump sums to an annuity is tantamount to the plaintiff purchasing an annuity contract with the lump sums so converted.
With respect to the second issue, we advised 19(1) that a structured settlement involving the absolute transfer of liability and ownership by a self-insurer or foreign-based insurer to a secondary insurer would be acceptable as far as the non-taxability of the annuity payments to the plaintiff is concerned if the other requirements set out in IT-365R2 are met. We could not, however, comment on the tax implications to any of the other parties involved in the transactions.
At the meeting,19(1) raised two additional issues:
1. The acceptability of the commutation of the remaining guaranteed payments left on an annuity contract after the death of the plaintiff.
2. Proper form and required information to be included in advance income tax ruling requests.
We could not comment on the first issue raised and invited Mr. to write in to us for our views on this subject.
On the second issue we advised 19(1) that there was no standard format for these ruling requests but he could be guided by previous rulings we have issued to his company.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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