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: 1) Can an individual make contributions to a RRIF? 2) Can a RRIF carry out transactions with the annuitant's general investment account? 3) Will a transfer between carriers trigger the payment of the minimum amount?
Position: 1) No. 2) Yes. 3) Generally, yes.
Reasons: 1) 146.3(2)(f) restricts what property a carrier can accept as consideration under the RRIF contract. 2) Nothing preventing transactions between RRIF and annuitant if done at fmv. 3) Transferor carrier has to retain the minimum amount if it hasn't been paid out for the year.
XXXXXXXXXX 1999-000788
M. P. Sarazin
January 27, 2000
Dear Sir:
Re: Registered Retirement Income Funds ("RRIFs")
This is in response to your letter dated November 28, 1999 in which you ask several questions relating to RRIFs.
Question #1
What may cause the deregistration of a RRIF? Would making a contribution to a RRIF cause deregistration?
Response
Under subsection 146.3(11) of the Income Tax Act (the "Act"), the registration of a RRIF may be revoked where the RRIF is revised or amended and, as a result, it no longer complies with the requirements for registration of a RRIF. The requirements applicable to RRIFs are set out in subsection 146.3(2) of the Act. The enclosed Information Circular 78-18R5 describes the statutory conditions for registration.
Under paragraph 146.3(2)(f) of the Act, as a condition of registration the fund terms must provide that the carrier of a RRIF not accept property as consideration thereunder, other than property transferred from other registered plans in certain circumstances, property from the annuitant if it represents an amount paid to the RRIF as described in subparagraph 60(l)(v) of the Act (basically, these are amounts received by an individual out of registered plans) or an amount transferred from a provincial pension plan in circumstances to which 146(21) of the Act applies.
The transfer of any other funds or property by the annuitant which is not described above (for example, a cash contribution by an annuitant which is not described in subparagraph 60(l)(v) of the Act) will result in an amended plan and a deemed revocation in accordance with subsection 146.3(11) of the Act.
Question #2
Are swaps of property of equal value between an annuitant's RRIF and an annuitant's unregistered account allowed under the Act?
Response
There is nothing in the Act preventing a RRIF from acquiring property from the annuitant's unregistered account. However, the annuitant is deemed to have disposed of the property out of the unregistered account for its fair market value and the annuitant may realize capital gains or losses or income from the disposition. We note that capital losses are deemed to be nil under paragraph 40(2)(g) of the Act. If the property acquired by the RRIF is not a "qualified investment" within the meaning assigned by subsection 146.3(1) of the Act, there will be an income inclusion to the annuitant of the fair market value of the property for the year in which the RRIF acquires it - subsection 146.3(7) of the Act. When the RRIF disposes of the non-qualified investment, there is a deduction available for that year under subsection 146.3(8) of the Act of the lesser of the fair market value at the time of its acquisition and the sale price.
Where the swaps of property are not for equal value then several provisions could apply to penalize the annuitant, including the possible revocation of the RRIF's registration where paragraph 146.3(2)(f) is offended. This determination would require a review of all of the facts.
Question #3
Does a transfer of RRIF property from one carrier to another trigger the payment of the RRIF minimum amount? What if the property is transferred from one RRIF trust to another?
Response
Under paragraphs 146.3(2)(e.1) and (e.2) of the Act, where an annuitant directs that the carrier transfer all or part of the property held in connection with the RRIF to a person who has agreed to be a carrier of another RRIF of the annuitant, the carrier has to retain sufficient property to enable it to pay the minimum amount for the year to the annuitant after the transfer. Generally, the carrier will pay the minimum amount to the annuitant at the same time that the balance of the property is paid to the other carrier. However, the Act does not dictate when the payment has to be made so the carrier may choose to make the payment on the scheduled payment date.
Please note that "carrier" is a defined term under the Act. There are four different kinds of carriers described in the Act, one of which is a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee. In other words the payment of a minimum amount is triggered whether the carrier of the RRIF is a trustee or one of the other three types of carriers.
Question #4
Has the Canada Customs and Revenue Agency (the "Agency") revised Interpretation Bulletin IT-238R2?
Response
IT-238R2 is the latest version of this Interpretation Bulletin. We note that our letter to you dated February 23, 1998 (file 970644) explained the Agency's views regarding the payment of RRIF administration, investment counsel and management fees. We confirm that such fees could be paid with funds from inside the RRIF or with funds from outside the RRIF and that such fees are not deductible by the annuitant.
Question #5
If a RRIF carrier makes an error and issues a second payment of the minimum amount to the annuitant in the same taxation year, can that second payment be reversed?
Response
The Act does not provide for the correction of such errors. The Income Tax Rulings Directorate can only provide interpretations with respect to the application of the Act. We note that requests for administrative relief to correct errors should be addressed to the Director of the appropriate tax service office that deals with the taxpayer(s) affected by the error. The Director of the appropriate tax service office is the only person entitled to consider such requests.
Question #6
Can an annuitant convert all or part of his or her RRIF to a life annuity with no income tax ramifications?
Response
As described in paragraph 9 of the enclosed Interpretation Bulletin IT-528 titled "Transfers of Funds Between Registered Plans" (copy enclosed) a RRIF annuitant can have an excess amount (i.e. an amount in excess of the minimum amount required to be paid for the year from the fund) from his or her RRIF directly transferred to an annuity as described in subparagraph 60(l)(ii) of the Act. The amount transferred from the individual's RRIF has to be included in the individual's income for the year of receipt and an offsetting deduction is available under paragraph 60(l) of the Act.
To qualify under subparagraph 60(l)(ii) of the Act, the annuity must be a single life annuity, a joint and last survivor annuity with the individual's spouse as the joint annuitant, or an annuity for a fixed number of years equal to the number of years until the individual, or the individual's spouse, attains 90 years of age. The date on which the periodic payments began or are to begin must be no later than the end of the year following the year in which the contract was acquired by the individual. The annuity must provide for equal periodic payments unless they have been adjusted for reasons that would, if the contract were an annuity under a retirement savings plan, be in accordance with the indexing or other options provided under subparagraphs 146(3)(b)(iii) to (v) of the Act or they have been uniformly reduced as a consequence of a partial surrender of the right to receive periodic payments under the contract.
Alternatively, paragraphs 146.3(1)(b.1) and (b.2) of the definition "qualified investment" provide that certain annuities may be held by a RRIF trust as qualified investments. In these cases, the RRIF trust continues to exist but holds a particular annuity as an investment.
Under paragraph 146.3(1)(b.1), an annuity will qualify if the RRIF trust is the only person that has the right to receive any annuity payments under the contract (unless the trust disposes of the annuity) and the annuity contract must give the holder of the contract an on-going right to surrender the contract for an amount that, ignoring reasonable sales and administrative charges, approximates the amount that could be required to fund the future periodic payments under the contract.
Under paragraph 146.3(1)(b.2), a RRIF trust may hold a second type of annuity where the annuity satisfies the following six conditions:
(a) periodic payments under the annuity contract are required to be made on an annual or more frequent basis;
(b) the RRIF trust must be the only person that has the right to receive any annuity payments under the contract (unless the trust disposes of the annuity);
(c) neither the time nor the amount of any payment under the contract can vary because of the length of any life, other than the life of the RRIF annuitant, except that where the annuitant under the fund has elected to have the carrier pay the minimum amount each year to the annuitant's spouse after the annuitant's death, the payments under the contract can be based on the joint lives of the annuitant and the annuitant's spouse;
(d) the date on which the periodic payments began or are to begin must be no later than the end of the year following the year in which the contract was acquired by the trust;
(e) the annuity contract must be either
(i) a life annuity for the life of the RRIF annuitant or, where the RRIF annuitant had a spouse when the contract was acquired, for the joint lives of the RRIF annuitant and the RRIF annuitant's spouse, that does not have a guaranteed period that runs past the end of the year in which the RRIF annuitant attains 90 years of age, except that where the RRIF annuitant had a spouse at the time that the contract was acquired, the guaranteed period, if any, can run up to the end of the year in which the spouse attains 90 years of age (if it is a later year), or
(ii) a term annuity with a term equal to either 90 years minus the age of the RRIF annuitant at the date on which the periodic payments start or 90 years minus the age of the RRIF annuitant's spouse as of that date; and
(f) the periodic payments must be equal unless
(i) they have been adjusted for reasons that would, if the contract were an annuity under a retirement savings plan, be in accordance with the indexing or other options provided under subparagraphs 146(3)(b)(iii) to (v), or
(ii) they have been uniformly reduced as a consequence of a partial surrender of the right to receive periodic payments under the contract.
Question #7
Where a new RRIF is established with a new RRIF identification number, will the issuance of the new identification number result in tax consequences?
Response
The RRIF identification number is for identification purposes only and the issuance of a number to a new RRIF will not result in any tax consequences. It is the required or optional payments out of the new RRIF, the deregistration of the RRIF, and other events, some of which are discussed above, that will cause tax consequences.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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, 2000
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, 2000