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: Which rollover provisions apply when an annuity contract with funds invested in both non-segregated and segregated accounts is jointly owned by two spouses and one of the spouses dies?
Position: Subsections 148(8.2) and 70(6) may apply.
Reasons: Legislation provides for the application of these provisions.
XXXXXXXXXX 1999-001313
Attention: XXXXXXXXXX
March 27, 2000
Dear Sir:
Re: Subsection 148(8.2)
This is in reply to your letter of December 1, 1999 wherein you requested our views with respect to the possible application of subsection 148(8.2).
The hypothetical situation which you have asked us to consider is as follows:
1. Mr. A and Mrs. A each hold a 50% interest in an annuity contract.
2. Mr. A is the annuitant.
3. The annuity contract provides that Mr. A and Mrs. A can choose to invest a portion or all of the funds in a non-segregated type account or/and in a segregated fund account. We have assumed that for purposes of this letter Mr. A and Mrs. A invest their funds in both types of accounts.
4. Mrs. A dies. Under her will, her interest in the annuity contract which includes the segregated fund account is to be transferred to Mr. A.
Subsection 148(3) of the Income Tax Act ("Act") provides that the amounts paid by a policyholder to acquire his/her interest in the segregated funds are to be excluded in computing the adjusted cost basis of the annuity contract. It also provides that the proceeds of the disposition of an interest in the annuity contract is deemed to exclude any amount payable out of the segregated funds.
A policyholder who has invested funds in the segregated fund account is deemed, pursuant to subparagraph 138.1(1)(e)(i) of the Act, to have an interest in the related segregated fund trust. Pursuant to subparagraph 39(1)(a)(iii) of the Act the part of the annuity contract, in respect of which Mr. A and Mrs. A are deemed by paragraph 138.1(1)(e) of the Act to have an interest in the related segregated fund trust, is capital property to Mr. A and Mrs. A. As a result, Mr. A and Mrs. A will each have an interest in the segregated fund trust which is treated for income tax purposes as capital property.
Upon the death of Mrs. A, subsection 148(8.2) of the Act should apply with respect to the annuity contract but not with respect to Mrs. A's interest in the deemed trust which was created pursuant to subsection 138.1(1). Consequently, there would be a rollover pursuant to subsection 148(8.2) to the surviving spouse, Mr. A, but only with respect to the non-segregated funds because of the application of subsection 148(3) of the Act.
In addition, upon the death of Mrs. A, the rules in subsection 70(6) of the Act should apply with respect to the interest in the segregated fund trust of Mrs. A where the requirements of that subsection are otherwise complied with.
We trust that the above comments will be of assistance.
Yours truly,
F. Lee Workman
Section Manager
Financial Industries Division
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Branch
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