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:
Sometimes a donor/annuitant of a charitable annuity lives beyond the number of years they were expected to live at the time they acquired the annuity (based on the 1971 Individual Mortality Tables). How will annuity payments received by the annuitant after they have exceeded their life expectancy be taxed?
Position:
Charitable annuities issued after December 20, 2002, will be taxed in the same manner as all other annuity contracts are taxed under the Income Tax Act. Assuming the annuity is a "prescribed annuity contract", annuity payments are included in income in the year the payments are received and the taxpayer may claim a deduction in respect of the capital element of the payments.
Reasons: The legislation regarding the taxation of "prescribed annuity contracts".
November 18, 2003
HEADQUARTERS HEADQUARTERS
Charities Directorate Alison Campbell
Client Assistance (613) 957-3496
Attention: Ara Stepanian
2003-003851
Charitable Annuities
This is in reply to your e-mail dated September 10, 2003, wherein you requested clarification with respect to the treatment of annuity payments, made pursuant to a charitable annuity contract, subsequent to the passage of the amendments proposed in the Technical Bill released by the Department of Finance on December 20, 2002.
Charitable annuities issued after December 20, 2002, will be taxed in the same manner as any other annuity. For purposes of this memorandum it is assumed that the "charitable annuity" to be issued to the donor will qualify as a "prescribed annuity contract" as defined in subsection 304(1) of the Income Tax Regulations (the "Regulations). Annuity payments received by the donor will be included in the donor's income pursuant to paragraph 56(1)(d) of the Income Tax Act (the "Act"). The donor/annuitant will be entitled to deduct, pursuant to paragraph 60(a) of the Act, the capital element of each annuity payment included in income pursuant to paragraph 56(1)(d) of the Act. The capital element of each annuity payment is determined in prescribed manner pursuant to subsection 300(1) of the Regulations. While specific reference should be made to section 300 of the Regulations, the calculation of the capital element of a life annuity under section 300 of the Regulations essentially apportions the "adjusted purchase price" of the taxpayer's interest in the annuity (generally the cost of the annuity) over the expected life of the donor. The expected life of the donor is to be determined by referring to the 1971 Individual Annuity Mortality Table as prescribed in Volume XXIII of the Transactions of the Society of Actuaries. The deduction under paragraph 60(a) of the Act is available to the donor in respect of each year the donor has an inclusion in income under paragraph 56(1)(d) of the Act in respect of his/her interest in the annuity contract including those years that surpass the life expectancy referred to above.
We trust this will enable you to respond to the queries you have been receiving in this regard.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases.
Lee Workman
Manager
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Branch
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