Principal Issues: Is a casualty insurer allowed to commute the remaining guarantee payments after the death of the Claimant under a structured settlement arrangement where it is named a beneficiary.
Position: yes
Reasons: Position established in 922785 and 971705. IT-365R generally meant to apply to Claimants. This position allows commutation for the remaining guarantee period where the claimant dies and the casualty insurer is a named beneficiary.
2005-016061 XXXXXXXXXX C. Tremblay, CMA 957-2139 December 7, 2005
Dear XXXXXXXXXX:
Re: Structured Settlements
This is in reply to your letter of November 23, 2005, and further to our telephone conversation of November 29, 2005, concerning commutation by a casualty insurer of its interest in a structured settlement. You are contemplating a structured settlement arrangement where the guarantee of the beneficiary/reversionary interest of the structured settlement annuity contract is to be shared on a 50/50 basis between persons named by the recipient and the casualty insurer.
Our Comments
The particular circumstance in your letter on which you have asked for our views concerns factual situations involving specific taxpayers. As explained in Information Circular 70-6R5 issued by the Canada Revenue Agency (the "CRA"), it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Although we are unable to provide any binding assurance with respect to the interpretations requested, we do provide the following general comments for your information.
Paragraph 5 of IT-365R2, entitled "Damages, Settlements and Similar Receipts", states that a structured settlement annuity contract must be non-transferable, non-assignable and non-commutable. However, where the casualty insurer as owner of the annuity is also a named beneficiary under the structured settlement annuity contract, in our view, upon the death of the claimant, the casualty insurer may commute the remaining guaranteed payments up to its interest in the structured settlement annuity contract without jeopardizing the tax-free status of the structured settlement arrangement in the hands of the claimant and his or her estate or named beneficiaries.
We trust that our comments are of assistance but, as noted above, we would caution that they do not constitute an advance income tax ruling and, accordingly, are not binding on the CRA with respect to any particular transaction.
Yours truly,
Roberta Albert, CA
For Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Planning Branch