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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether or not the disposition of an interest in an annuity contract could be subject to section 9
Position: No.
Reasons:
The scheme of the Act and section 148 in particular does not provide for a loss on the disposition of an annuity contract
XXXXXXXXXX 2002-014075
July 5, 2002
Dear XXXXXXXXXX:
Re: Taxation of Annuity Contracts
This is in reply to your letter of May 14, 2002 wherein you requested our views with respect to the taxation of annuity contracts and more particularly whether a loss could be claimed pursuant to section 9 of the Income Tax Act ("Act") with respect to the disposition of annuity contracts.
The Act deals specifically with the taxation of annuity contracts. Subsection 248(1) of the Act provides that a life insurance policy has the meaning assigned by subsection 138(12) of the Act. Pursuant to subsection 138(12) of the Act a life insurance policy includes an annuity contract. Pursuant to subparagraph 39(1)(a)(iii) of the Act the disposition of an interest in an annuity contract would not result in a capital gain. Subsection 148(1) of the Act requires that where an interest in an annuity contract is disposed of the amount by which the proceeds of the disposition exceed the adjusted cost basis of the annuity is to be fully included in income as provided for in paragraph 56(1)(j) of the Act. We note that pursuant to section 148 of the Act there is no provision permitting a taxpayer to deduct any losses which may arise in the context of a disposition of an interest in an annuity contract.
Section 148 of the Act provides for certain rollovers which may apply with respect to a disposition of an interest in an annuity contract. Section 148 of the Act does not distinguish between individual or corporate policyholders. Section 12.2 of the Act provides for accrual rules with respect to annuity contracts other than prescribed annuity contracts and this separate from the accrual rules found in subsections 12(3) and (4) of the Act with respect to debt obligations and investment contracts. Subsection 20(20) of the Act provides for the deduction of over accruals when an interest in an annuity contract, other than a prescribed annuity contract, is disposed of.
As described above, the Act provides specific rules governing the taxation of annuity contracts and those rules do not provide for a loss to be recognized on the disposition of same.
At this point we have some difficulties with your suggestion that a loss on the disposition of an annuity contract should be deductible under subsection 9(1) of the Act particularly given that you acknowledge that gains would be included in income pursuant to section 148 of the Act. If subsection 9(1) of the Act was intended to apply in respect of annuity contracts arguably there would be no need for section 148 to provide for the taxation of gains.
While we hope our comments are of assistance this opinion is not a ruling and accordingly, it is not binding on Canada Customs and Revenue Agency.
We trust that the above will be of assistance.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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