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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
What is the value of a segregated fund annuity contract which has been registered as an RRSP and has a minimum death benefit guaranty? In this situation, the amount paid as a result of the death of the annuitant is determined as of the date that the insurance company receives notification of death, not as of the date of death.
Position:
It is not relevant when and how the ultimate payout by the insurance company is determined. If the guaranteed amount is greater than the fair market value of the annuity as otherwise determined at the time of the death of the last annuitant, then it is the guaranteed amount that is used for the purposes of subsection 146(8.8). If the fair market value of the annuity is higher than the guaranteed amount, it is this higher value that is used for the purposes of subsection 146(8.8)
Reasons:
The fair market value of the segregated fund annuity contract can never be less than the guaranteed amount.
XXXXXXXXXX 2001-011634
G. Kauppinen
March 14, 2002
Dear XXXXXXXXXX:
Re: Registered Retirement Savings Plans ("RRSP")
This is in reply to your facsimile transmission dated December 31, 2001 regarding RRSPs wherein you posed some questions concerning our technical interpretation, 2001-007157, dated June 27, 2001.
Your question relates to a situation where a segregated fund annuity contract has been registered as an RRSP pursuant to paragraph (a) of the definition of "retirement savings plan" in subsection 146(1) of the Income Tax Act ("Act"). In this particular annuity contract, the insurance company determines the death benefit payable to the deceased annuitant on the date that the insurance company is notified of the death, not on the actual date of death. The segregated fund annuity has a guaranteed minimum payout.
You pose 2 hypothetical situations:
Date of death Company notified November 30, 2001 April 30, 2002
1. Guaranteed value $9,000 $9,000
Market value of annuity $10,000 $8,000
2. Guaranteed value $9,000 $9,000
Market value of annuity $10,000 $13,000Specifically you ask:
(a) What is the fair market value of the segregated fund annuity for the purposes of subsection 146(8.8) of the Act?
(b) If, when the segregated annuity contract is terminated and the beneficiary paid, how is any excess over the amount in (a) reported?
Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R4 dated January 29, 2001, issued by the CCRA. Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
Where there is a guaranteed minimum amount payable, in our view, whether the ultimate payout to the beneficiary is at the time of death or at the time that the insurance company is notified of the death is not relevant to the determination of the fair market value at the time of the annuitant's death.
In both the 1st and 2nd examples, the fair market value of the annuity, as otherwise determined, is greater than the guaranteed value at the time of the death of the last annuitant. It is the higher amount which is used as the fair market value of the property held by the RRSP (i.e., $10,000) for the purposes of subsection 146(8.8) of the Act. Alternatively, as stated in our file 2001-007157, it is our opinion that if the guaranteed amount was the higher value, it should be used for the purposes of subsection 146(8.8) of the Act. The fair market value of the annuity can never be less than the guaranteed amount regardless of when the actual payout is made.
In your 1st example, at the time the amount of the payout is determined, the fair market value of the annuity, as otherwise determined ($8,000), has decreased below the guaranteed amount ($9,000). Pursuant to the definition of "benefit" in subsection 146(1) of the Act, when the assets of an RRSP are distributed to a beneficiary thereof, the fair market value of the assets so distributed less, among other things, the portion of such assets as can reasonably be considered to have been included in the annuitant's income at the time of death by virtue of subsection 146(8.8) of the Act will be taxable to the beneficiary. In this example, there is no taxable benefit to be reported by the beneficiary because the payout of $9,000 is less than the fair market value of the annuity at the time of the death of the last annuitant (i.e., $10,000), which was taxed on the annuitant's final tax return.
In your 2nd example, when the amount of the payout is determined, the fair market value of the annuity ($13,000) has increased above what it was at the time that the annuitant died ($10,000). In this example, the taxable benefit to be reported by the beneficiary in the year he or she receives the segregated annuity or equivalent value of $13,000 is $3,000 (i.e., the payout of $13,000 less the $10,000 reported on the final T1 of the annuitant pursuant to the definition of "benefit" in subsection 146(1) of the Act). This taxable benefit would be reported on a T4RSP slip.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002
Email this Content