24 March 1988 Income Tax Severed Letter 5-5411 - [880324]

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.

C. Tremblay (613) 957-2139

Attention: XXXX

MAR 24 1988

Dear Sirs:

This is in reply to your letter of January 20, 1988, requesting our confirmation that "locked-in" non-registered deferred annuity contracts issued prior to November 1981, are not subject to the accrual tax reporting rules for 1987.

Our Comments

Provided that the individual acquired the interest in the deferred annuity contract before December 2, 1982, and could not, after December 1, 1982, and before the end of the taxation year under consideration, require the repayment, acquisition, cancellation or conversion of that interest (i.e. the taxpayer is locked in) and the maturity date of the contract has not, during that time period, been extended and the terms and conditions relating to payments in respect of that interest have also not been changed, subsection 12.2(7) of the Income Tax Act will apply to exempt taxpayers from the accrual rules for the entire term. This means that the "Interest Guaranteed Period" referred to in your letter would extend from the date of issue of (before December 2, 1982) until after December 31, 1987, for the exemption to apply. It also means that there can be no implied term in the contract or administrative policy that would allow the holder of a "locked in" contract to surrender such a contract prior to January 1, 1988. An exemption is also provided for annuity contracts on which the cash surrender value does not exceed the premiums paid for the period after December 1, 1982, and before the end of the taxation year under consideration.

In contrast, if annuity contracts acquired before December 2, 1982, do not meet either of these two exceptions and are still held at the end of 1984, they are deemed issued on December 31, 1984, and therefore individuals holding such annuity contracts must report the first income inclusion in their 1987 returns.

We trust our comments will be of assistance.

Yours truly, ORIGINAL SIGNED BY Wm. R. McColm

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch