17 July 1996 External T.I. 9606595 - CHARITY, ANNUITY, RRSP

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 Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Can a charitable organization provide the retirement income under a life annuity to an rrsp on its maturity?

Position:

No

Reasons:

The charitable organization would have to qualify as an issuer of an rrsp (which it wouldn't) and it would have to be able to issue life annuities (only insurance companies are entitled to issue life annuities).

            960659
XXXXXXXXXX  M.P. Sarazin

Attention: XXXXXXXXXX

July 17, 1996

Dear Sirs:

Re: Annuities Issued by XXXXXXXXXX

This is in reply to your letter dated February 12, 1996, wherein you requested confirmation of the tax consequences should your client acquire funds from registered retirement savings plan ("RRSP") issuers and issue life annuities as a form of retirement income.

Comments

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Although we cannot provide a specific answers to your queries, we offer the following general comments which are not binding on the Department.

An RRSP is defined in subsection 146(1) of the Act to mean a retirement savings plan accepted by the Minister for registration for purposes of the Act as complying with the requirements of section 146. A "retirement savings plan" is defined in subsection 146(1) of the Income Tax Act and it includes a contract between an individual and a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an annuities business, under which, in consideration of payment by the individual or the individual's spouse of any periodic or other amount as consideration under the contract, a retirement income commencing at maturity is to be provided for the individual. Consequently, the charitable organization would have to determine whether or not it would qualify as a person licensed or otherwise authorized under the laws of Canada or a province to carry on an annuities business in Canada.

A retirement savings plan will be accepted for registration if it complies with the conditions described in subsection 146(2) of the Income Tax Act (the "Act"). Under the provisions of paragraph 146(2)(b) of the Act, the plan cannot provide for the payment of any benefit after maturity except for three types of payments, one of which is a retirement income to the annuitant.

"Retirement income" is defined in subsection 146(1) of the Act to include

(a)an annuity commencing at maturity, and with or without a guaranteed term commencing at maturity, not exceeding the term referred to in paragraph (b), ... payable to

(i)the annuitant for the annuitant's life, or

(ii)the annuitant for the lives, jointly, of the annuitant and the annuitant's spouse and to the survivor of them for the survivor's life ....

If the charitable organization can qualify as an "issuer" of a "retirement savings plan", the charitable organization would have to determine whether it is authorized to issue an annuity described in paragraph (a) of the definition of "retirement income". Even though this provision does not include any restrictions with respect to who may provide a life annuity, it is generally understood that a life annuity can only be issued by a person licensed or otherwise authorized under Canadian law to carry on an annuities business in Canada.

An RRSP cannot provide for the payment of any "benefit" before or after maturity of the plan to anyone except the annuitant of the RRSP. If a charitable organization is legally entitled to issue a life annuity and the terms of the life annuity are not comparable to the terms of life annuities issued by other organizations, an argument may be presented that the charitable organization will receive a "benefit", as defined in subsection 146(1) of the Act, taxable in accordance with subsection 146(8) and paragraph 56(1)(h) of the Act.

A charitable organization may have its registration revoked if it is carrying on a business that is not related to the business of the charitable organization. Whether a charitable organization will be considered to be carrying on a business that is not related to its charitable activities is a question of fact that can only be determined on a case by case basis. The decision to revoke registration is taken only after the facts of the situation have been given careful consideration.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch