Principal Issues: Whether the payment of bonus interest by a RIF carrier to an annuitant's RRIF would be a prohibited benefit for purpose of paragraph 146.3(2)(g), prior to March 23, 2011 (the effective date 146.3(2)(g) is repealed)?
Position: In general, no, provided the bonus interest is paid by the RIF carrier into the annuitant's RRIF
Reasons: The provisions of 146.3(2)(g), specifically, subparagraph 146.3(2)(g)(i). Also, our position regarding prohibited benefits for purposes of RRIFs is similar to our position regarding prohibited advantages and RRSPs.
XXXXXXXXXX
2013-047507
G. Allen
March 22, 2013
Dear XXXXXXXXXX:
Re: Paragraph 146.3(2)(g) Pre-March 23, 2011 RRIF Rules
This letter is in response to your email sent January 16, 2013 wherein you request our views concerning the application of paragraph 146.3(2)(g) of the Income Tax Act (the "Act") prior to the repeal of paragraph 146.3(2)(g), effective March 23, 2011. Specifically, you request our views concerning the application of subparagraph 146.3(2)(g)(i) of the Act in situations where bonus interest is paid by a retirement income fund (RIF) carrier into an annuitant's registered retirement income fund (RRIF).
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advance Income Tax Ruling", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca/formspubs/menu-e.html. Nonetheless, we have provided some general comments below, which we hope will be of some assistance to you. However, as stated in paragraph 22 of the Information Circular, this opinion is not binding on the Canada Revenue Agency in respect of any particular situation.
Our Comments
In general, paragraph 146.3(2)(g) of the Act required that no benefit, other than those specified under subparagraphs (i) to (iii), that was conditional on the existence of the RIF could be extended to the annuitant of the RIF or to a person not dealing at arm's length with the annuitant. Where a benefit that was prohibited by paragraph 146.3(2)(g) of the Act was extended as a consequence of the existence of a RIF, the provisions of subsections 146.3(13), repealed effective March 23, 2011, and 146.3(11) of the Act applied.
In your email, you refer to our position concerning the payment of bonus interest to a registered retirement savings plan (RRSP) and that subparagraph 146(2)(c.4)(ii) of the Act appeared to specifically exclude bonus interest from being a prohibited advantage in an RRSP. You also refer to our document 9718745, where, in general, we stated that we take a similar view regarding the payment of benefits into RRIFs as advantages into RRSPs. In general, it is our view that bonus interest paid by a RIF carrier to an annuitant's RRIF would not constitute a benefit that is prohibited by paragraph 146.3(2)(g) of the Act. However, there may be situations where bonus interest may be considered a prohibited advantage for an RRSP or prohibited benefit for an RRIF. In this regard, we would refer you to our document 2004-0054671E5.
We trust that our comments will be of assistance to you.
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
