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 foreign annuity be held in an RRSP trust?
Position:
No
Reasons:
Not a qualified investment
962941
XXXXXXXXXX M.P. Sarazin
Attention: XXXXXXXXXX
September 16, 1996
Dear Sirs:
Re: Foreign Property of Registered Plans
This is in reply to your letter dated July 24, 1996, which was addressed to our Kitchener Tax Services office and recently forwarded to our Directorate for our consideration, wherein you requested the Department's views as to whether a foreign insurance annuity contract (in particular an annuity contract with a Swiss insurance company) would be a qualified investment that can be held by a self-directed registered retirement savings plan ("RRSP").
In order to held by an RRSP trust, property must qualify as a "qualified investment" within the meaning assigned by subsection 146(1) of the Income Tax Act (the "Act"). Interpretation Bulletin IT-320R2 titled Registered Retirement Savings Plans - Qualified Investments (copy enclosed) provides our general comments with respect to the kinds of property that constitute qualified and non-qualified investments for an RRSP trust and it also discusses the income tax consequences of an RRSP acquiring and holding non-qualified investments. Where an RRSP has acquired and continues to hold a non-qualified investment, the annuitant is required to include the fair market value of the non-qualified investment in his or her income under subsection 146(10) of the Act or the RRSP trust is subjected to a special tax under Part XI.1 of the Act. Generally, the income inclusion and the special tax ensure that RRSP trusts do not acquire non-qualified investments.
There are certain methods in which an annuity contract can be used in conjunction with an RRSP. One method is to have an annuity contract registered as an RRSP and the other is to have an RRSP acquire an annuity contract that is a qualified investment.
A person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an annuities business can register an annuity contract as an RRSP. The annuity contract must provide for commencement at maturity of a retirement income. Unless your company is authorized under the laws of Canada or a province to carry on an annuities business in Canada, your annuity contracts would not be registered as an RRSP.
In order to be a qualified investment, an annuity contract would have to satisfy the conditions found in paragraph (c) of the definition of "qualified investment" found in subsection 146(1) of the Act. An annuity contract will be a qualified investment if it is an annuity described in the definition of "retirement income" in subsection 146(1) of the Act and it is purchased from a person licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada an annuities business. Consequently, unless your company is authorized under the laws of Canada or a province to carry on an annuities business in Canada, your annuity contract will not qualify as a qualified investment.
Certain trusts and corporations governed by deferred income plans, including self-directed RRSPs, are entitled to invest, within specified limits, in foreign property. For RRSPs, the foreign property would have to be qualified investments. Where the cost amount of the foreign property held by an RRSP trust exceeds 20% of the cost amount of all property held at that time, the RRSP trust will be subjected to a special tax under Part XI of the Act. Interpretation Bulletin IT-412R2 titled Foreign Property of Registered Plans (copy enclosed) identifies the persons that may be subject to the special tax and discusses various investments and whether or not they represent foreign property. A property may be a foreign property for Part XI but this does not mean it is a qualifying investment for an RRSP trust.
We trust the above comments and the enclosed copy of each of IT-320R2 and IT-412R2 will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
Enclosures
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