15 May 1996 Income Tax Severed Letter 961661A - USE OF 1983 INDIVIDUAL ANNUITY MORTALITY TABLE

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.

J. A. MacFarlane
XXXXXXXXXX 5-961661

Attention: XXXXXXXXXX

May 16, 1996

Dear Sir:

Re: Interpretation Bulletin IT-111R2

This is in reply to your letter of May 7, 1996 wherein you inquire if the 1971 Individual Annuity Mortality Table or the 1983 Individual Annuity Mortality Table should be used to determine if a charitable donation has been made when an annuity has been issued. You have also noted that there is an error in the 1983 Individual Annuity Mortality Table that is appended to IT-111R2.

If a person wishes to make a gift by purchasing an annuity from a charitable organization one of the things that must be determined is whether a gift has been made, that is, did the amount the person pay to acquire the annuity exceed the amount that the person will receive, or can reasonably expect to receive, in annuity payments. When the annuity is for a fixed term the amount the person will receive is readily determined by multiplying the number of payments by the amount of each payment. However, when the annuity is for the life of the person it is the Department's position that the 1983 Individual Annuity Mortality Table should be used to determine the number of payments that the person can reasonably expect to receive. (See ¶s 3 and 4 of IT-111R2, Annuities Purchased from Charitable Organizations.) If there is a gift, the entire amount of each payment is a return of capital. If there is no gift, the annuity payments are included in income under paragraph 56(1)(d) and paragraph 60(a) provides for a deduction from income of the capital element of the payments as determined by Part III of the Income Tax Regulations. (See ¶1 of IT-111R2.) Subparagraph 300(2)(a)(i) of the Regulations identifies the 1971 Individual Annuity Mortality Table for this purpose.

We are aware that the 1983 Individual Annuity Mortality Table contained in the bulletin is incorrect. The age associated with the number of yearly instalments is out by one year for all ages of males and females. For example, a male who is 10 years old at December 31 of the year payments begin is said to be able to expect 70.2 yearly instalments. The correct number of instalments should be 69.2, that is, the number associated with a male who is 11 years old at December 31 of the year payments begin.

A revision to IT-111R2 is currently in process to make it abundantly clear that the 1983 tables should be used to calculate the gift element of an annuity and in cases where there is no gift that subparagraph 300(2)(a)(i) of the Regulations specifically requires the use of the 1971 tables in calculating the capital element of the annuity for purposes of paragraph 60(a).

We trust that our comments will be of assistance.

The opinions expressed in this letter are provided in accordance with the practice described in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.

Yours truly

for Director,
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch