Principal Issues: 1. Where a general insurance carrier is XXXXXXXXXX - can it assign the structured settlements it owns to other general insurance carriers? 2. Are the claimants still entitled to receive the amounts from the Lifeco tax-free?
Position: 1. YES, provided the Claimants consent
2. YES
Reasons: 1. Consent from claimant - policy in IT-365R2 2. Nothing changes for the claimant. The same Annuity is received from the same LIFECO
XXXXXXXXXX 2006-018588
XXXXXXXXXX, 2006
Dear XXXXXXXXXX,
Re: Advance Income Tax Ruling
XXXXXXXXXX ("A Co")
XXXXXXXXXX ("B Co")
This is in reply to your letters dated XXXXXXXXXX requesting an advance income tax ruling on behalf of A Co and B Co with respect to proposed assignments of structured settlements as described herein. We acknowledge information provided during a telephone conversation on XXXXXXXXXX.
To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein is:
(i) dealt with in an earlier tax return of A Co, B Co, or a related person;
(ii) being considered by a tax services office or taxation center in connection with a previously filed return of A Co, B Co, or a related person;
(iii) under objection by A Co, B Co, or a related person;
(iv) subject of a ruling previously issued by the Income Tax Rulings Directorate to A Co, B Co or a related person; nor
(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired.
Unless otherwise indicated, all statutory references herein are to the provisions of the Income Tax Act (the "Act") and all defined terms and phrases have the meaning ascribed to them in the Act.
Our understanding of the facts and proposed transactions is as follows:
Facts
1. The address of A Co is XXXXXXXXXX A Co files its income tax returns at the XXXXXXXXXX Taxation Centre and is serviced by the XXXXXXXXXX Tax Services Office.
2. The address of B Co is XXXXXXXXXX and its Tax Services Office is XXXXXXXXXX Tax Services Office.
3. A Co is a casualty insurance company that is an "insurance corporation", and does not carry on a "life insurance business", as those terms are defined in subsection 248(1) of the Income Tax Act (the "Act"). A Co was the owner and purchaser of XXXXXXXXXX structured settlement annuity contracts (the "Contracts"). XXXXXXXXXX.
4. The XXXXXXXXXX Contracts in 3 above were issued by four different life insurance corporations ("Lifeco") as follows: XXXXXXXXXX Each Lifeco is an "insurance corporation" carrying on a "life insurance business", as those terms are defined in subsection 248(1) of the Act.
5. The terms of each Contract provide that it is non-commutable, non-assignable, and non-transferable. Although A Co is the owner and annuitant (that is, the beneficiary) under each Contract, A Co executed an irrevocable direction in respect of each Contract, directing Lifeco to make the payments to a Claimant or, in the event of the Claimant's death, to the Claimant's estate (or such other secondary payee related to the Claimant as may be named in the Contract), as the case may be.
6. Each of these arrangements constitutes a "structured settlement" within the meaning of paragraph 5 of Interpretation Bulletin IT-365R2, entitled Damages Settlement, and Similar Receipts. As a result, the payments received by a Claimant or, in the event of the Claimant's death, by the Claimant's estate (or such other secondary payee related to the Claimant as may be named in a Contract) are currently not subject to taxation in the hands of the Claimant or, in the event of the Claimant's death, by the Claimant's estate (or such other secondary payee related to the Claimant as may be named in the Contract) under any provision of the Act.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
Proposed Transactions:
9. A Co, XXXXXXXXXX , proposes to assign and transfer all of its rights under the Contracts to B Co (the "Assignee"), and have the Assignee assume all its obligations under the Contracts, pursuant to assignment and assumption agreements (the "Assignment and Assumption Agreements"). The Assignee is an "insurance corporations" as this term is defined under the Act.
10. XXXXXXXXXX.
Purpose of the Proposed Transactions:
XXXXXXXXXX.
Rulings Given
Provided that the above-mentioned facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions, that the Assignment and Assumption Agreements are substantially the same as the documents provided to us, that the proposed transactions are carried out as described herein, and that the Assignment and Assumption Agreements for the assignment and assumption of A Co's rights and obligations under the Contracts are executed and assented to by each of the Claimants, A Co and B Co, we rule as follows:
Because the Assignment and Assumption Agreements will not be considered to contravene the requirements contained in paragraph 5 of IT-365R2 for structured settlements that an annuity be non-assignable, non-commutable and non-transferable (see comment below), the Assignment and Assumption Agreements, in and by themselves, will not cause the payments received by the Claimants (or their respective estates or such other secondary payees related to the Claimants as may be named in the Contracts) under the structured settlements, as described in 6, to be subject to taxation in their hands under any provision of the Act.
Comment:
Provided that the Claimants have consented to the assignment of the structured settlements as described in the Ruling, in our view, the Assignment and Assumption Agreements, in and by themselves, will not contravene the restriction contained in paragraph 5 of IT-365R2 that an annuity be non-assignable, non-commutable and non-transferable.
The ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R5, dated May 17, 2002, issued by the Canada Revenue Agency ("CRA"), and is binding on the CRA provided the Assignment and Assumption Agreements are executed on or before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch