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:
Payments under a structured settlement arrangement (paragraph 5 Of IT-365R2) are being made to a claimant. The payments are guaranteed to be made for a certain period of time even though the claimant may die prior to expiration of that time period. The Department's current position is that all payments are non-commutable. We have been asked whether this position can be altered so that the remaining guaranteed payments can be commuted following the death of the claimant.
Position:
It is not possible to alter the position.
Reasons:
In order for the payments to be regarded as being non-taxable damages, none of the payments must not be capable of commutation.
971694
XXXXXXXXXX M. Eisner
Attention: XXXXXXXXXX
July 23, 1997
Dear Sirs:
Re: Commutation of a Structured Settlement
This is in reply to your letter of June 24, 1997 concerning the above-noted subject.
You are concerned about the requirement of a structured settlement, that the annuity contract(s) funding the structure in respect of a claimant be non-commutable (paragraph 5(c)(i) of IT-365R2 "Damages Settlements and Similar Receipts") in all circumstances. You have asked us to reconsider this position so that the remaining guaranteed benefits payable under a structured settlement arrangement could be commuted upon the death of the claimant and be paid to his or her estate. Otherwise, in some cases, the estate cannot be wound up for many years. In relation to a memorandum (960800) issued by this Directorate, you have also asked whether it would make any difference if periodic payments had been made to the claimant at the time of death.
In order for the benefits payable under a structured settlement to be treated as being non-taxable damages, it is the Department's position that any amount which may be paid to an estate as a result of the death of a claimant (whether or not payments had been made at the time of death), must not be capable of being commuted. Thus, we are not prepared to alter our general position so that the remaining guaranteed benefits payable could be commuted and paid to a claimant's estate after he or she dies.
We trust that our comments will be of assistance to you.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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