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 segregated fund contract be a qualified investment? Will an insurance contract that is an annuity be a qualified investment where the annuitant’s spouse is the named beneficiary under the contract?
Position: Question of fact. Yes.
Reasons: Certain investment contracts will qualify as qualified investments. Where the wife is the beneficiary under the contract and the annuity contract would otherwise qualify, we would accept the investment since the rrsp trust has all the rights to annuity payments under the contract while the annuitant is alive and the wife only has rights, that she would have through the estate, after the annuitant’s death.
XXXXXXXXXX 982307
M. P. Sarazin
Attention: XXXXXXXXXX
July 15, 1999
Dear Sirs:
Re: Refund of Premiums
This is in reply to your letter dated September 3, 1998, wherein you asked for our comments on a scenario where a segregated fund contract held as an investment of an RRSP trust has designated the annuitant’s spouse as the beneficiary of the segregated fund contract. You have advised that such an arrangement could serve to “creditor-proof” the segregated fund contract, notwithstanding that it is held by an RRSP trust. Your query is whether or not any death benefit proceeds received by the annuitant’s spouse upon the death of the annuitant qualify as a “refund of premiums” as defined in subsection 146(1) of the Income Tax Act (the “Act”).
It appears that the interpretation you seek relates to proposed transactions to be undertaken by specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R3 dated December 30, 1996, issued by Revenue Canada. Confirmation of tax consequences with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling with respect to specific transactions which are contemplated, a written request for an advance income tax ruling can be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following comments.
It is our understanding that a segregated fund policy is an insurance contract. An insurance contract that is an annuity or is a contract for an annuity will be a qualified investment for a trust governed by an RRSP provided that it meets the conditions in any of paragraphs 146(1)(c), (c.1) or (c.2) of the definition “qualified investment” in subsection 146(1) of the Act. The relevant condition for annuity contracts in the context of your query is that the RRSP trust be the only person who is or may become entitled to any annuity payments under the contract. The Act is silent with regard to other types of payments that may be made under the contract and thus it is our view that the beneficiaries of such payments need not be the RRSP trust.
An insurance contract that is a life insurance policy is not defined to be a qualified investment for an RRSP, however, by virtue of subsections 146(11) and 198(6) of the Act, a life insurance policy which meets certain conditions will not be deemed to be the acquisition of a non-qualified investment by the RRSP trust. However, unlike annuity contracts referred to above, a life insurance policy must meet the condition that the RRSP trust is the only person entitled to any rights or benefits under the policy.
It is a question of fact whether or not any particular segregated fund contract will be an annuity contract that is a qualified investment for an RRSP trust or a life insurance policy that is not deemed to be the acquisition of a non-qualified investment by an RRSP trust.
Where a segregated fund contract is an annuity contract that is a qualified investment for an RRSP, it is our view that any payment under that contract will be an amount paid out of or under the RRSP of the annuitant, notwithstanding that it may be paid directly to the annuitant’s spouse under the contract. Accordingly, such a payment could qualify as a “refund of premiums” provided the other conditions in that definition are met. In addition, provided the conditions in paragraph 60(l) are met, the annuitant’s spouse would be entitled to a deduction under that provision.
The above analysis would apply equally in a scenario involving a RRIF and “designated benefits” therefrom.
We trust our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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