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:
1. Can an existing annuity be "converted" into a PAC?
2. Does this conversion result in a disposition of the existing annuity?
Position:
1. Yes.
2. Question of fact but it may be possible if the conversion does not require significant/material changes to the contract.
Reasons:
1. Wording of Regulation 304 - see subparagraphs (c)(i) and (iv).
2. XXXXXXXXXX .
XXXXXXXXXX 983231
Attention: XXXXXXXXXX
March 16, 1999
Dear Sirs:
Re: Conversion of an annuity contract into prescribed annuity contract
This is in reply to your letter to Mr. Lennas Moore of our Halifax Tax Services Office dated December 1, 1998 wherein you requested the Department's views as to whether the terms of an existing annuity contract could be amended to provide for its conversion into a prescribed annuity contract ("PAC"), as defined in section 304 of the Income Tax Regulations (the "Regulations") to the Income Tax Act (the "Act"), and more specifically, whether such a conversion would result in a disposition of the existing annuity contract.
The determination of the proper income tax consequences relating to any particular situation will depend on an analysis of all the facts, documentation and other information pertaining to the situation. Further, since your request appears to relate to a proposed transaction involving a specific taxpayer the confirmation of the income tax consequences can only be provided in response to a request for an advance income tax ruling that is submitted in accordance with the guidelines set out in Information Circular 70-6R3 (“IC 70-6R3”) dated December 30, 1996, issued by Revenue Canada. Although we are not able to comment specifically on the situation you have provided, we can offer the following general comments.
It is possible under the Act to amend the terms and conditions of an annuity contract to permit its conversion into a PAC. For example, the wording of subparagraph 304(c)(vi) of the Regulations clearly contemplates that an existing annuity will become a PAC once the particular annuity meets the requirements of paragraph 304(c) of the Regulations. However, it remains a question of fact as to whether changes to the terms and conditions of a particular annuity contract, either alone or collectively, would be so substantial as to go to the very root of the contract. For example, if the changes result in changes to some or all of the various underlying assumptions used by the issuer those changes, if significant, could cause us to conclude that a disposition of the particular annuity contract has taken place. On the other hand if the changes to the underlying assumptions are minor then ordinarily they may not cause us to conclude that a disposition of the particular annuity contract has taken place.
In summary, while the Act does not prevent the conversion of an existing annuity contract into a PAC whether or not the changes that are required for the conversion to take place will result in there being a disposition of the particular annuity contract can only be determined by reviewing the facts of each particular situation on a case by case basis.
While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 21 of the IC 70-6R3 and are not binding upon the Department.
Yours truly,
F. Lee Workman
Financial Institutions
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
cc. Mr. Lennas Moore
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