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:
With respect to paragraph 5 of IT-365R2, can all liability under a settlement agreement be assigned from the casualty insurer to a third- party insurer who carries on business outside Canada?
Position TAKEN:
On an advance income tax rulings basis such circumstances will be considered.
Reasons FOR POSITION TAKEN:
This Department has previously provided favourable rulings where the casualty insurer has, with the consent of the claimant(s), assigned all liability under a settlement agreement to a third-party insurer provided the assignee undertakes to fund its obligations by means of an otherwise qualified structured settlement.
941280
XXXXXXXXXX M. Eisner
Attention: XXXXXXXXXX
August 15, 1994
Dear Sirs:
Re: Structured Settlement Assignments
This is in reply to your facsimile dated May 13, 1994 concerning the above-noted subject.
Paragraph 5 of Interpretation Bulletin IT-365R2 "Damages, Settlements and Similar Receipts" describes the circumstances under which an amounts paid in respect of a claim for damages are non-taxable in the claimant(s) hands. Condition (c)(i) of that paragraph indicates that the casualty insurer must purchase a single premium annuity contract which must be non-assignable, non-commutable, non-transferable and designed to produce payments equal to the amounts, and at the times, specified in the settlement agreement. In addition, paragraph 5 of IT-365R2 states that the casualty insurer must
"(ii) make an irrevocable direction to the issuer of the annuity contract to make all payments thereunder directly to the claimant, and
(iii) remain liable to make the payments as required by the settlement agreement (i.e., the annuity contract payout)."
As you are aware, this Department has also provided favourable advance income tax rulings in circumstances where the casualty insurer has, with the consent of the claimant(s), assigned all liability under a settlement agreement to a third-party insurer provided the assignee undertakes to fund its obligations by means of an otherwise qualified structured settlement. Accordingly, the assignee, for the purposes of securing its obligations, will acquire an annuity contract to provide the required payments which will be non-assignable, non-commutable and non-transferable from an issuer and will irrevocably direct the issuer to make all payments under the annuity contract to the claimant(s).
In relation to the above comments, your concern is that since insurers who carry on business in Canada are reluctant to accept the liability associated with such an assignment, it may be necessary that the assignee be an insurer who carries on an insurance business outside Canada.
With respect to your concern, please be advised that the Department will continue to consider circumstances involving the assignment of obligations under a settlement agreement on an advance income tax rulings basis including circumstances where the assignee is an insurer who carries on business outside Canada.
We trust our comments will be of assistance to you.
Yours truly,
J.A. Szeszycki
for Director
Business and General Division
Rulings Directorate
Policy and Legislation Branch
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