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.
Principal Issues: Will a Claimant remain non-taxable on a structured settlement annuity payment should an insurer transfer the ownership of the structured settlement to another insurer.
Position: YES, however such a transfer is not in accordance with our comments in IT-365R2 and the CRA will not provide an advance income tax ruling on this type of transfer by an insurer.
Reasons: The CRA is not a party to the structured settlement arrangement.
2005-014285
XXXXXXXXXX C. Tremblay, CMA
(613) 957-2139
September 28, 2005
Dear XXXXXXXXXX,
This is in reply to your letter of July 19, 2005 wherein you requested an advance income tax ruling with respect to the transfer and assumption of structured settlements. You ask us to confirm that a transfer or assumption of a structured settlement from one entity to another related entity would not cause any amount to be included in the income of the individual claimants or otherwise affect the tax treatments of the individual claimants for future amounts received under the structured settlement arrangements.
Your request relates to specific proposed transactions, which are generally the subject of a advance income tax ruling, however, in certain circumstances as discussed in paragraph 15 of Information circular 70-6R5 we cannot or will not rule. We cannot rule on your request because the central issue involves a matter that is contrary to a published policy in paragraph 5 of Interpretation Bulletin IT-365R2. We have, however, provided a general comment relating to the type of situation envisioned.
Paragraph 5(c)(i) of IT-365R2 states "...the casualty insurer must purchase a single premium annuity which must be non-assignable, non commutable, non-transferable...". We have recently revised this position to allow a property and casualty insurer (a "P&C insurance carrier") to assign or transfer the ownership of the structured settlement arrangement to another P& C insurance carrier provided the claimant consents. We will also permit a life insurance company to assign or transfer the annuity in regard to future structured settlement payments provided the claimant consents. In our opinion, in a situation where an insurer transfers or assigns its interests and/or obligations under a structured settlement arrangement without the consent of the claimants, the tax position of the claimants will not be affected. That is, the transfer and assignment will not result in any immediate tax consequences to the claimants and the future structured settlement payments received will not be subject to tax in their hands under any provision of the Income Tax Act, as it presently reads.
The foregoing comments represent our general views on the subject matter. However, this letter does not advocate that the Canada Revenue Agency approves, in any manner, a transfer or assignment of a structured settlement arrangement by an insurer without the claimant's consent. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on the Canada Revenue Agency.
Yours truly,
Steve Tevlin,
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch
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