4 January 1999 External T.I. 9830195 - 147.4(1), LIF, RPP TRANSFER

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: Does section 147.4 apply to amounts transferred from a RPP to a LIF?

Position: No.

Reasons: Our understanding of LIFs is that they are RRIFs with additional requirements imposed by provincial legislation. Section 147.4 only applies in respect of RPP annuities.

XXXXXXXXXX 983019
M. P. Sarazin
Attention: XXXXXXXXXX

January 4, 1999

Dear Sirs:

Re: Registered Pension Plan Conversion to an Annuity

This is in reply to your letter dated May 8, 1998, which we received November 19, 1998, wherein you requested our views on the acquisition of either an annuity contract or a Life Income Fund (“LIF”) in satisfaction of the individual’s entitlement to benefits under a registered pension plan (“RPP”). The issue is the timing of the benefits to be paid out in either case and whether or not, from a policy perspective, that timing should be the same.

Comments

The term Life Income Fund has no meaning under the Income Tax Act (the “Act”). However, our understanding is that a LIF is a RRIF that has additional conditions imposed on it under provincial legislation. Where an individual transfers his entitlements under a RPP to a RRIF, this transfer is undertaken pursuant to subsection 147.3(1) or 147.3(4) of the Act and not section 147.4. When an individual acquires a RRIF, payments equal to at least the “minimum amount” (defined in subsection 146.3(1) of the Act) must commence “not later than the first calendar year after the year in which the arrangement was entered into” pursuant to the definition “retirement income fund” in subsection 146.3(1) of the Act.

Under the proposed amendments to clause 8502(e)(i)(A) of the Income Tax Regulations (the “Regulations”) which will be effective after 1996, RPPs are required to commence to pay the retirement benefits of a member not later than the end of the calendar year in which the member attains 69 years of age. Where an individual transfers his RPP entitlements to a RRIF in the year in which he or she attains 69 years of age, the first payment from the RRIF would not be required until the first calendar year after the year in which the arrangement was entered into, as described above, which in this case would be the year in which the individual attains 70 years of age.

However, under the provisions of paragraph 147.4(1)(b) of the Act, an annuity contract acquired in full or partial satisfaction of an individual’s entitlement to benefits under a RPP must provide the individual with rights that are not materially different from those provided under the RPP. Therefore, in order to parallel the requirement in clause 8502(e)(i)(A) as described above, the annuity contract would have to provide for the commencement of annuity payments not later than the end of the calendar year in which the member attains 69 years of age in order to satisfy the condition in paragraph 147.4(1)(b) of the Act.

Based on the wording of the various provisions of the Act and Regulations described above, the timing of the commencement of payments from an annuity or from a RRIF is very clear. Consequently, we can only conclude that the provisions reflect, from a policy perspective, the intentions of the Department of Finance.

We trust that our comments will be of assistance.

Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch