27 May 1999 External T.I. 9905325 - QUALIFIED INVESTMENT - ANNUITY

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether annuity contract in p. (c.1) of the definition of qualified investment in s.s. 146(1). is a qualified investment in a RRSP trust despite the fact that an RRSP beneficiary is also beneficiary under the contract.

Position: No.

Reasons: A person other than RRSP is entitled to annuity payments.

XXXXXXXXXX 				5-990532
					Fouad Daaboul
Attention:  XXXXXXXXXX 

May 27, 1999

Dear Sirs:

Re: Qualified Investment and Beneficiary for Annuity

This is in reply to your facsimile submission of March 1, 1999, wherein you requested confirmation of your understanding of the Department's general views with respect to subparagraph (c.1)(i) of the definition of "qualified investment" in subsection 146(1) of the Income Tax Act ("Act"). You advise that it is your understanding that the owner of the annuity has to be the RRSP trust and such a condition would not prevent the beneficiary of the annuity from being someone other than the RRSP trust such as the annuitant's spouse.

As indicated in Information Circular 70-6R3, confirmation of the tax consequences flowing from completed transactions must be obtained from your local tax services office. This Directorate will provide a technical interpretation concerning the provisions of the Act and Regulations but not with respect to specific completed or proposed transactions. We may, however, provide the following general comments concerning the provisions of the Act, in accordance with the above-mentioned Information Circular, which are not binding on the Department.

The term "qualified investment" for a trust governed by a registered retirement savings plan ("RRSP") is defined in subsection 146(1) of the Act. Paragraph (c) of the definition provides that an annuity contract that could have been purchased directly as an RRSP by an RRSP annuitant is a qualified investment for a trust governed by an RRSP. For this paragraph to apply, it is expected that the annuity contract would specify that payments must ultimately be made directly to the annuitant and not the trust.

Paragraph (c.1) of the definition which is applicable after 1996 is intended to allow an RRSP trust to hold various types of accumulation annuities and segregated fund policies. It permits another type of annuity contract to be a qualified investment for a trusteed RRSP provided that the annuity contract satisfies two conditions. One of the conditions is that the RRSP trust must be the only person that has the right to receive annuity payments under the contract (unless the trust disposes of the annuity).

Since the provisions of the Act and the July 1997 Technical Notes are very clear, we are of the view that an annuity contract that allows a person other than the RRSP trust to receive annuity payments will not be a qualified investment because the condition described in subparagraph 146(1)(c.1)(i) of the definition "qualified investment" would not be satisfied. Consequently, an annuity contract that gives the named beneficiary under the contract a right to annuity payments would not satisfy the above noted condition.

We trust our comments will be of assistance to you.

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch