CRA indicates that a PAC cannot be held by a trust not listed in Reg. 304(1)(c)(iii)(A)

A prescribed annuity contract (PAC) generally provides a more beneficial tax treatment to the annuitant than other types of annuities, which are subject to the accrual rules in s. 12.2(1). One of the requirements to be a PAC under Reg. 304(1)(c) is the requirement in Reg. 304(1)(c)(iii)(A) that the “holder” of the annuity contract be an individual (other than a trust) or a listed type of trust, i.e., an alter ego trust, joint spousal or common-law partner trust, post-1971 spousal or common-law partner trust, or qualified disability trust.

CRA rejected a suggestion that a PAC could be held in a non-listed trust in reliance on Reg. 304(3)(a), which deems the annuitant under an annuity contract to be the holder of the contract where the contract is held by another person in trust for the annuitant (defined in Reg. 304(4) as a person who is entitled to receive annuity payments under the contract) – so that (it was suggested) the holding of the mooted PAC by a non-listed trust could be deemed to be its holding by an individual beneficiary of the trust.

CRA indicated that Reg. 304(3)(a) could, for instance, permit a parent to hold an annuity contract for the parent’s child until the attainment of a specific age, so that Reg. 304(3)(a) would deem the child to be the holder of the contract, such that there thus would be an individual holder who satisfied Reg. 304(1)(c)(iii)(A). CRA concluded that “the expression ‘in trust’ in paragraph 304(3)(a) … is more akin to a nominee [arrangement]” and is not meant to accommodate non-listed trusts.

Neal Armstrong. Summary of 7 May 2024 CALU Roundtable Q. 7, 2024-1005821C6 under Reg. 304(1)(c)(iii)(A).