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: 1. Is a casualty insurer relieved from the requirements of par 5 of IT-365R2 to remain liable for the payments when it assigns an action to an assignee with consent from the claimant in a structured settlement? 2. Is the casualty insurer relieved from reporting the interest income after it has assigned the structured settlement to an assignee?
Position: 1. Yes 2. Yes
Reasons: 1 and 2. The assignment consented and agreed to by the claimant transfers the responsibilities to another owner who will purchase an annuity, as part of the structured settlement arrangement, from a life insurance company.
2007-025485
XXXXXXXXXX C. Tremblay, CMA
(613) 957-8979
November 21, 2007
Dear XXXXXXXXXX:
Re: Structured Settlements
This is in reply to your letter of October 3, 2007 wherein you submitted a draft assignment and assumption agreement and you asked us whether, under the agreement:
a) a casualty insurer (who will be the "Assignor" under the agreement) of a defendant (the "Plaintiff") will be completely relieved and absolved from the requirement to remain liable to make the payments as described in paragraph 5(c)(iii) of the Interpretation Bulletin IT-365R2, and whether
b) the casualty insurer of the Plaintiff will be completely relieved by the Canada Revenue Agency from the requirements to report as income the interest inherent in an annuity contract.
As the situation outlined in your letter appears to involve an actual situation, it should be noted that binding assurance as to the tax consequences of proposed transactions are only given by this Directorate in the context of an advance income tax ruling. However, we can offer the following general comments.
We have reviewed the draft assumption and assumption agreement submitted by you, and we note the following:
Paragraph 1, which describes the assignment and assumption states:
"The Assignor hereby assigns and the Assignee hereby assumes all of the Assignor's obligations under the periodic payment scheme...which payments are to be made irrevocably to the Plaintiff...and the Assignor hereby assigns funds on deposit with ...[a life insurance company, "Lifeco"] ... to the Assignee, which funds shall be applied to the purchase from Lifeco of a single premium annuity to make the payments as set out..."
Paragraph 3, which describes the consent and release of the Plaintiff, states:
"Plaintiff hereby consents to the assignment described ...hereof and hereby releases and forever discharges the Assignor...from the periodic payment obligations as set out in paragraph 1...and agrees to look only to the Assignee in satisfaction of the said periodic payment obligations. If either the Assignee or the Lifeco fails to make payments or becomes insolvent or bankrupt, the Plaintiff and...heirs' or representatives' sole remedy to enforce the said periodic payment obligation shall be against the Assignee or Lifeco only. The Assignor...shall not have any obligation to the Plaintiff under those circumstances..."
Under a draft document such as this, since the responsibilities of the Assignor to remain liable to make the payments under the action are forever discharged and the Assignor is released from further responsibilities, in our opinion, the Assignor has no responsibilities under the structured settlement and has no requirements under paragraph 5 of IT-365R2.
Further, in our view, since the Assignor has assigned its responsibilities to an Assignee with full consent from the Plaintiff, the Assignor no longer has any interest in the action; accordingly, the responsibilities to report the interest income inherent in the annuity contract belong to the owner of the annuity, which is the Assignee.
We trust the above comments are of assistance.
Yours truly,
R. Albert, CA
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2007
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2007
Email this Content