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:
A "structured settlement" is involved with the related annuity contract being, among other things, non-commutable. In circumstances where the claimant does not survive the guarantee period, and, under the terms of the settlement, 50% of each of the remaining periodic amounts were to be paid to the claimant's estate and the other 50% of the periodic amounts were to be paid to the casualty insurer, the concern is whether the casualty insurer could commute its entitlement to its share of 50% of the remaining periodic amounts after the Claimant dies.
Position:
It is our general view that the 50% of the remaining periodic amounts due to the casualty insurer could be commuted without jeopardizing the structured settlement arrangement.
Reasons:
Once the claimant dies, the entitlement of the casualty insurer is not considered to involve damages but, under the arrangement, 50% of the remaining periodic amounts after the claimant's death will be paid to the estate and not be commuted.
971770
XXXXXXXXXX M. Eisner
(613) 957-2138
Attention: XXXXXXXXXX
October 21, 1997
Dear Sirs:
Re: Commutations and Structured Settlements
This is in reply to your letters of June 27 and September 4, 1997 concerning the above noted-subject. We apologize for the delay in replying.
The situation set out in your letter relates to an actual situation and involves proposed transactions. Confirmation of the tax consequences of such transactions will only be provided in response to a request for an advance income ruling following a review of the relevant facts and documentation. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R3. We are, however, prepared to provide you with the following general comments.
Your concern relates to the terms of a "structured settlement" arrangement, which are described in paragraph 5 of Interpretation Bulletin IT-365R2. Specifically, a claimant must receive payments pursuant to a structured settlement agreement under which the casualty insurer is committed to make periodic payments for a fixed term or the life of the claimant and the related annuity contract, must, among other things, be non-commutable. You are concerned about the effect of this rule if the claimant does not survive the guarantee period, and, under the terms of the settlement, 50% of each of the remaining periodic amounts were to be paid to the claimant's estate and the other 50% of the periodic amounts were to be paid to the casualty insurer.
The question is whether the casualty insurer could commute its entitlement to 50% of the remaining periodic amounts. The other 50% payable to the estate would not be commuted.
It is our general view that the remaining payments due to the casualty insurer under such an arrangement, could be commuted in favour of the casualty insurer after the death of the individual claimant without adverse income tax consequences to the claimant or the estate. Accordingly, in relation to the comments in paragraph 5 of IT-365R2, we would have no objection if the casualty insurer were to commute its entitlement to 50% of the remaining periodic amounts in the manner outlined.
On the basis that the arrangement under which payments relating to personal damages will continue to be made to the claimant's estate, and it continues to otherwise satisfy the requirements in paragraph 5 of IT-365R2 subsequent to the commutation, the payments would be regarded as being non-taxable.
We trust our comments will be of assistance to you.
Yours truly,
John F. Oulton
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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