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.
Principal Issues: The taxpayer requests clarification of the meaning of a payment in the form of a life annuity out of or under an RCA that meets the conditions in the definition of "eligible pension income" in subsection 60.03(1) of the Act.
Position: The term "life annuity" is not defined in the Act. A definition of the term "annuity" is provided in subsection 248(1) of the Act. The Act considers certain annuities to be lifetime pensions under a pension plan where payments are made to the member until the member's death.
Reasons: In order for payments from an RCA to be in the form of a life annuity, the benefits payable must be payable on a periodic basis, payable to the member of the RCA for his or her lifetime or jointly for the lifetimes of the member and his or her spouse or common-law partner and supplemental to pension benefits provided under the individual's RPP.
XXXXXXXXXX
2013-051554
K. Podor
July 4, 2014
Dear XXXXXXXXXX:
Re: Life annuity payment from a retirement compensation arrangement (RCA)
This is in reply to your correspondence dated December 12, 2013, wherein you request clarification regarding the meaning of "life annuity" for the purpose of determining eligibility of RCA income for pension income splitting.
This technical interpretation provides general comments about the provisions of the Income Tax Act (the "Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, "Advance Income Tax Rulings".
Our Comments
For 2013 and subsequent taxation years, certain payments made to an individual in the year out of or under an RCA are eligible for pension income splitting under section 60.03 of the Act. Several conditions set out in paragraph (b) of the definition "eligible pension income" in subsection 60.03(1) of the Act must be satisfied, including requirements relating to the benefits provided under a registered pension plan ("RPP"), other than an individual pension plan as defined in subsection 8300(1) of the Income Tax Regulations. In addition, the RCA benefits must be in the form of a life annuity that is attributable to periods of employment for which benefits are also provided to the individual under the RPP.
To address your specific question, RCA benefits that are payable on a periodic basis for the lifetime of the member of the RCA or jointly for the lifetimes of the member and his or her spouse or common-law partner will be considered in the form of a life annuity.
However, to qualify as eligible pension income, the RCA benefits must also be supplemental to, and in respect of the same periods of employment as, the pension benefits provided to the individual under the RPP. In our view, these conditions, when read as a whole, require that the RCA benefits be payable in substantially the same form as the RPP benefits (i.e. payable for life in equal periodic amounts subject to inflation or other adjustments permitted under the RPP).
We trust our comments will be of assistance.
Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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