3 March 1999 Income Tax Severed Letter e9827105.txt - RRIF DETERMINATION OF MIN. AMOUNT

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 the new definition of a minimum amount apply to an RRIF established before 1993?

Position: Subject to some grandfathering provisions, yes.

Reasons: The coming-into-force rules.

XXXXXXXXXX 		982710
W. C. Harding
March 3, 1999

Dear Sir\Madam:

Re: Minimum Payments out of a RRIF

This is in reply to your letter of October 7, 1998, concerning the application of recent amendments to the Income Tax Act (the "Act") with respect to the payment of minimum amounts out of a RRIF.

Because of the limited information provided in your letter, we cannot provide you with a specific reply. However, we can provide the following general comments which may or may not be applicable to your situation.

The provisions of a RRIF must provide that payments will be made to the annuitant and if the annuitant elects, to the spouse of the annuitant after the annuitant's death. The total of these annual payments must also be equal to or greater than a "minimum amount", calculated as described below, or the value of the property held under the fund at the time of the payment, which ever is less.

The "minimum amount" that must be paid out of a RRIF is "nil" for the year in which the fund is established. For each year thereafter, the minimum amount is calculated using one of two formulas depending on when the fund was established, whether it has been amended at any time and whether it has acquired an annuity since July 1997. There are no elections with respect to which formula may be used in respect of a particular plan. However, both formulas do require elections to be made with respect to use of the age of the annuitant or the annuitants spouse. A more detailed explanation of the calculation of minimum amounts is contained in the enclosed Information Circular 78-18R5 Registered Retirement Income Funds.

The calculation of the minimum amount in 1998 and all subsequent years for a RRIF that was first established before March 1986, that has not been revised or amended since March 1986, and that has not acquired any annuity since July 1997, is fairly complex and depends on the specific terms of the RRIF. The financial institution that administers your RRIF should be able to provide the calculation of the provisions that are applicable to you if this is the case.

For 1998 and all subsequent years, the minimum amount must be calculated following a new formula if the RRIF was entered into after February 1986. The new formula must also be used for any plan entered into before March 1986:

for 1998 and all subsequent years if it was revised or amended after February 1986 but before 1998;

from the year it is subsequently revised or amended if it is revised or amended after 1997; and

from the first year following any day (after July 1997) when the fund acquires an annuity contract.

Generally, the new formula is the same as the old formula except it now provides for the flow through of certain annuity income if the fund holds annuities. In basic terms, the minimum amount is now the total of:

• a "prescribed fraction" for the year (as discussed in the enclosed bulletin) multiplied by the total fair market value of the property held in connection with the fund at the beginning of the year (other than certain annuity contracts), and
• the total (or an estimate thereof) of all periodic amounts received by a trust governed by the fund, under such an annuity held at the start of the year.

The enclosed information circular has not yet been updated to include comments on the recent changes for RRIFs that hold annuities (as described above). However, the financial institution that administers your RRIF is responsible for reporting this amount to you and should be able to provide details of the calculation if your RRIF holds any annuities.

As noted above there are no specific elections available with respect to the recent amendments. However, the acquisition by a fund of an annuity would result in a change of the rules for a RRIF originally entered into before March 1986. Furthermore, as noted in paragraph 11 of the enclosed circular, if a new RRIF is established on the transfer of property from an existing RRIF certain elections with respect to the determination of a prescribed factor could be changed.

We trust this information will be of assistance.

Yours truly,

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