15 August 1995 External T.I. 9511095 - STRUCTURED SETTLEMENT

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:

Assignment of all liability under a structured settlement agreement to a third-party that carries on a life insurance business.

Position TAKEN:

On an advance income tax rulings basis, the assignment will be considered.

Reasons FOR POSITION TAKEN:

The position is considered to be consistent with previous rulings issued by this Directorate.

		951109
XXXXXXXXXX	M. Eisner

Attention: XXXXXXXXXX

August 15, 1995

Dear Sirs:

Re: Structured Settlements

This is in reply to your letter of April 20, 1995 in which you requested our views on whether or not certain amounts received in respect of damages for personal injury or death would be regarded as being non-taxable. We also acknowledge our telephone conversation (Eisner/XXXXXXXXXX) on August 9, 1995 in which we discussed the issue set out your letter. We apologize for the delay in replying.

Paragraph 5 of Interpretation Bulletin IT-365R2 "Damages, Settlements and Similar Receipts" sets out the circumstances of an arrangement (referred to therein as a "structured settlement") under which periodic amounts paid in respect of a claim for personal damages are non-taxable in the hands of the claimant. The arrangement described in that paragraph involves a casualty insurer.

Where a request has been made for an advance income tax ruling pursuant to Information Circular 70-6R2 and the related Special Release dated September 30, 1992 (copies have been enclosed), this Department has provided a favourable ruling concerning a structured settlement where an assignment of liability was involved. The assignment occurs in circumstances where a casualty insurer or an uninsured tortfeasor, with the consent of the claimant, assigns all liability under a settlement agreement to a third-party insurer (a casualty insurer) who will undertake to fund its obligations by means of an otherwise qualified structured settlement.

In relation to the above comments, you have proposed that the assignee be a federally incorporated life insurance company which is an affiliate or subsidiary of the life insurance company that would issue the annuity contract to the affiliate or subsidiary for the purposes of funding the damages settlement. It is also our understanding that the subsidiary and the affiliate has obtained written approval from the Office of the Superintendent of Insurance with respect to this role.

Please be advised that the Department will continue to consider circumstances involving the assignment of obligations under a settlement on an advance income tax rulings basis including circumstances where the assignee is a federally incorporated life insurance company described above.

We trust that these comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Rulings Directorate
Policy and Legislation Branch