11 September 1997 External T.I. 9718425 - LAST ACQUIRED

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:

Transfer of a corporate owned annuity to a trust and the application of 12.2(1) of the Act after 1989.

Position:

The annuity will be considered to be acquired after 1989.

Reasons:

The law.

XXXXXXXXXX 971842

Attention: XXXXXXXXXX

September 11, 1997

Dear Sirs:

Re: Transfer of a Deferred Annuity Contract

This is in reply to your letter of July 3, 1997, concerning the application of subsection 12.2(1) of the Income Tax Act (the "Act") where a corporation transfers its ownership of a deferred annuity contract (that was last acquired before 1990) to a trust.

We are unable to address specific fact situations in a general letter of opinion. Should you wish confirmation of the income tax consequences of a specific proposed transaction you may request an advance income tax ruling in the manner set out in the Department's Information Circular 70-6R3 ("IC 70-6R3") dated December 30, 1996. Confirmation of the income tax consequences of a completed transaction may be only requested from the appropriate tax services office. In this regard you should include identification of the particular taxpayer involved along with copies of any documents or other relevant information. Notwithstanding the above, we are prepared to offer the following comments.

Since you described the current ownership of the deferred annuity contract as being with a corporation it is not clear to us why the accrual rules in section 12.2 of the Act do not currently apply to the particular deferred annuity contract in question. While the application of these rules to any particular deferred annuity contract remain a question of fact we refer you to Interpretation Bulletin IT-87R2, Policyholder's Income From Life Insurance Policies dated February 15, 1996 for a more complete explanation of these rules.

However, should subsection 12.2(1) of the Act not be currently applicable in respect of a particular deferred annuity contract, it is our view that where a corporation transfers the ownership of such contract to a trust such transfer would normally result in the disposition of the annuity contract by the corporation (and the corresponding acquisition of the annuity contract by the trust). Consequently the deferred annuity contract will be considered as being "last acquired after 1989" for the purpose of subsection 12.2(1) of the Act.

While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 22 of IC 70-6R3 and are not binding on the Department.

Yours truly,

F. Lee Workman
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch