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Canada
Customs and Revenue Agency
Structured
Settlements have become more attractive since the change of
Interpretation Bulletin IT-365R2 May 8, 1987. The Interpretation
Bulletin and Structured Settlements have been through many changes
from 1977 until present. Section 5 reads as follows:
Structured Settlement
A “Structured Settlement” is a means of paying or settling a
claim for damages, usually against a casualty insurer, in such
a way that amounts paid to the claimant as a result of the settlement
are free from tax in the claimant’s hands. To create such a
structured settlement the following conditions must be complied
with:
(a) a claim for damages must have been made in respect of personal
injury or death,
(b) the claimant and the casualty insurer must have reached
an agreement under which the latter is committed to make
at least periodic payments to the claimant for either a fixed
term or the life of the claimant,
(c) the casualty insurer must
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i) |
purchase a single
premium annuity contract which must be non-assignable,
non-commutable, non-transferable and designed to produce
payments equal to the amounts, and at the times, specified
in the agreement referred to in (b). |
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ii) |
make an irrevocable direction to
the issuer of the annuity contract to make all payments
thereunder directly to the claimant, and |
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remain liable to make the payments
as required by the settlement agreement (ie, the annuity
contract payout). |
As a consequence of compliance
with the foregoing conditions, the casualty insurer is the
owner of, and annuitant (beneficiary) under, the annuity contract
and must report as income the interest element inherent in
the annuity contract while the payments received by the claimant
represent, in the Department’s view, non-taxable payments
for damages.
In Summary:
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