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:
Are annuity payments received by an individual in respect of an IAAC which is a life annuity limited by the guaranteed term to a maximum term of 15 years?
Position: No.
Reasons: The wording of the Act.
August 16, 2002
Client Services Directorate Income Tax Rulings
Individual Programs Section Directorate
A. St-Amour, CA
Attention: Rick Owen 998-0290
2002-015471
Income Averaging Annuity Contracts (IAACs)
This is in response to your memorandum of July 26, 2002 requesting our interpretation of subparagraphs (a)(i) and (ii) of the definition of "income averaging annuity contract" ("IAAC") in subsection 61(4) of the Income Tax Act (the "Act").
The purpose of section 61 was to permit individuals to spread certain unusual lump-sum income receipts in equal portions over the current and future years through the purchase of a special type of annuity called an IAAC. The annuity payments are included in income when received, but the expenditures to purchase the annuity were deductible under section 61 when made. In this way the receipt of an amount that would otherwise fall into one year could be spread forward in the form of annuity payments over the term of the annuity contract. The deduction allowed in respect of a single payment made by a taxpayer for the purchase of an IAAC contract has been phased out and generally is no longer deductible after November 12, 1981. However, a transitional rule applied to allow payments after November 12, 1981 pursuant to certain written agreements or arrangements entered into before November 13, 1981 in respect of the individual's 1981 taxation year.
According to the definition of an IAAC in subsection 61(4) of the Act, we are of the view that the annuity can either be for the life of the individual, with or without a guaranteed term ((a)(i)), or for a term certain ((a)(ii)). However, neither the guaranteed term nor the term certain may exceed 15 years nor may it continue beyond age 85.
We agree with your comments that the phrase "with or without a guaranteed term not exceeding the number of years that is the lesser of..." in subparagraph 61(4)(a)(i) is intended to indicate the maximum length of the guarantee and does not limit the life annuity to the guaranteed term.
Manager
Section du financement et des régimes
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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