28 October 1987 Income Tax Severed Letter 7-2184 - [XXXX]

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.

XXXX W.C. Harding (613)957-3499

October 28, 1987

XXXX

This is in reply to your letter of August 12, 1987 requesting our comments with respect to the sufficiency for purposes of the Income Tax Act (the Act) of two forms of annuity to be used as retirement income under registered retirement savings plans.

Subparagraph 146(1)(g)(iii) of the Act provides that qualified investments for an RRSP include annuities described in paragraph 146(1)(i.l) as retirement income, if purchased from a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an annuities business. It is presumed that the company is so authorized.

Paragraph 146(1)(Œ.1) of the Act then defines, by reference to their terms, those annuities which are retirement incomes. In form both of the annuities provided for-our consideration would not be precluded from that definition. It must, however, remain as a matter of fact whether or not an actual contract fulfills the specified terms.

In your submission you noted:

1. The maximum guaranteed periods is not clear from the documents but will be observed by the insurance issuer.

As noted above, in our opinion it would be a matter of fact whether or not the guaranteed term of a negotiated contract falls within the permitted limitations for retirement incomes.

2. There is no prohibition in the annuity forms against collateral benefits. However, that prohibition does exist in the registered retirement savings plan forms.

The prohibition of collateral benefits is a condition for registration of a retirement savings plan. The Act does not require that it be a term of the retirement income itself.

3. There is no statement prohibiting commutation in the annuity form

but there is such a statement in the annuity application form.

Subsection 146(2) of the Act,which provides the conditions for registration of retirement savings plans, was substantially amended in its application to the 1986 and subsequent taxation years. Among other things, the amendment provided that a retirement income payable as a benefit after maturity of the plan may now be fully or partially commuted. The plan may now also make a payment to the annuitant prior to its maturity.

4. The annuity application form indicates types of annuities which would not be suitable for registered retirement savings plans but may be used in other contexts.

As the annuity application form was not provided to us, we cannot make any comments in respect of it.

In final comment, we note that both annuity forms provided indicate that ownership of the annuities is vested in the annuitants thereof. Please note that all properties of an RRSP must be held in the name of the trustee of the plan and not in the name of the annuitants.

The above opinions are our best understanding of the law. They do not, however, form an advance income tax ruling and are therefore not binding upon the Department.

We trust the foregoing is satisfactory.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch