5 December 2006 External T.I. 2006-0181721E5 - transfer of insured RRSP to a RRIF

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.

Principal Issues: Can an individual transfer an insurance policy to a RRIF where the savings portion of the policy is an RRSP and if so can the life insurance portion of the policy be maintained?

Position: No, the life insurance cannot be maintained.

Reasons: Its not possible to hold a whole life insurance policy in a RRIF.

								2006-018172
XXXXXXXXXX 							Wayne Harding
(613) 957-8953
December 5, 2006

Dear XXXXXXXXXX:

Re: Transfer of a Life Insurance Policy to a Registered Retirement Income Fund (RRIF)

This is in response to your facsimile of April 13 and August 10, 2006, regarding the transfer of a life insurance policy to a RRIF.

Written confirmation of the tax implications inherent in particular transactions can be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/formspubs/menu-e.html.

In your letter you indicated that you acquired a whole life insurance contract in 1975 and had the savings portion of this contract registered as a registered retirement savings plan (an "RRSP"). The policy provides that premiums are payable to age 65 and that policy dividends can be applied to acquire additional paid up insurance.

XXXXXXXXXX. To prevent this, you have asked if the whole policy can be transferred to a RRIF, together with a cash transfer from another RRIF that is sufficient to pay the required minimum annual RRIF payments, so that the policy can continue to be held in the RRIF until the cash surrender value and the paid up insurance are approximately equal in value, at which time you could terminate the policy.

Subsection 146.3(1) of the Income Tax Act (the "Act") defines the qualified investments that may be held in a RRIF and does not permit a life insurance policy to be held unless the policy is an annuity contract that has terms as set out within the provision. Accordingly, you cannot transfer a whole life insurance policy to an RRIF. However, we would like to draw your attention to certain factors that you may not be aware of which may be of assistance to you.

First, we note that the contract information you provided indicates that your policy was issued in XXXXXXXXXX, that it did not provide for maturity until you are 71 years of age and that this provision has not been amended since the policy was issued. The Act was changed in 1997 to require most RRSPs to mature prior to the end of the year in which the annuitant become 69 years of age. However, this provision does not apply to an RRSP that is part of a life insurance policy that was issued before March 6, 1996, if the life insurance component of the policy meets several conditions. Nevertheless, it appears that you believe the RRSP will mature when you are 69 years of age. Since, this may not be the case you may wish to confirm with the issuer of the policy when the RRSP will mature.

Second, it appears that you believe the RRSP must be transferred to a RRIF upon its maturity. An RRSP including the savings portion of a life insurance policy that is registered as an RRSP, may be amended prior to its maturity to provide for its transfer to a RRIF. However, to be treated as an RRSP, a policy must also provide for the payment of retirement benefits on maturity in the form of an annuity. You may therefore wish to confirm with your insurer that if your policy is allowed to mature the payment of the retirement income would not necessitate the termination of the life insurance provisions of the policy.

We trust that these comments will be of assistance.

Yours truly,

Mary Pat Baldwin C.A.

for Director
Financial Sector and exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch