5 October 2011 External T.I. 2010-0361681E5 - Life annuity

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.

Principal Issues: 1. Whether a Canadian resident having an interest in an American life annuity is required to file Form T1135 (Foreign Income Verification Statement) in relation to the American life annuity? 2. How to determine whether the cost amount of the American life annuity exceeds $100,000 Canadian dollars?

Position: 1. General comments, yes if the cost exceeds $100,000. 2. Taking into consideration paragraphs (e) or (f) (as applicable) in the definition of the "cost amount" in subsection 248(1) of the Act, the taxpayer needs to obtain this information from the administrators of the American life annuity or an actuary.

Reasons: 1. subsection 233.3(1) of the Act. 2. Original American life annuity contract signed between the taxpayer's husband and the insurance company administering the American life annuity should stipulate the cost amount.

XXXXXXXXXX
							2010-036168
							Minguy Choi
							613-957-2062
October 5, 2011

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RE: Life Annuity

This is in response to your facsimile that we received on March 24, 2010 wherein you enquired about whether a taxpayer, a Canadian resident, having an interest in an American life annuity ("Annuity") is required to file Form T1135 Foreign Income Verification Statement in relation to the Annuity and how to determine whether the cost amount of the Annuity is greater than $100,000 Canadian dollars. We apologize for our delay in responding to your request.

Specifically, you described a situation in which a Canadian resident received an interest in an annuity that was transferred to her upon her husband's death. You also indicated that you were unable to obtain any information about the cost amount of the Annuity from the Annuity's administrators. We also acknowledge your telephone message to us XXXXXXXXXX confirming that the taxpayer in question has always been a Canadian resident.

Our Comments

With respect to your first question relating to the requirement to file Form T1135, the term "annuity" is defined in subsection 248(1) of the Income Tax Act (the "Act") to include an amount payable on a periodic basis whether payable at intervals longer or shorter than a year and whether payable under a contract, will or trust or otherwise.

The foreign property reporting rules can be found in section 233.3 of the Act. Subsection 233.3(3) requires a "reporting entity" to file a return in prescribed form (Form T1135 Foreign Income Verification Statement) by that person's normal tax return filing deadline under Part I of the Act. Subsection 233.3(1) defines a "reporting entity" to be a "specified Canadian entity" whose total cost amount of "specified foreign property" exceeds $100,000. The term "specified Canadian entity" is defined in subsection 233.3(1) as a taxpayer resident in Canada in the year that is not specifically excluded in the provision; thus, an individual who is resident in Canada is a "specified Canadian entity". A "specified foreign property" is broadly defined in subsection 233.3(1) of the Act. In our view, an interest in a foreign life insurance policy is generally included in the definition of "specified foreign property".

As subsection 138(12) of the Act defines a "life insurance policy" to include an annuity contract, it is our opinion that a taxpayer who holds an interest in a foreign life insurance policy is required to file Form T1135 if the cost amount of the annuity is greater than $100,000 Canadian dollars.

With respect to your second question on how to determine whether the cost amount of an annuity is greater than $100,000 Canadian dollars, we refer you to paragraphs (e) and (f) in the definition of "cost amount" in subsection 248(1) of the Act. Paragraph (e) of that definition indicates that, in general, the "cost amount" where the property was a right of the taxpayer to receive an amount is the amount the taxpayer has a right to receive. Paragraph (f) indicates that the "cost amount" is, in general, the cost to the taxpayer of the property as determined for the purpose of computing the taxpayer's income.

The determination should be made on the basis of all the information you can reasonably obtain.

We hope that our comments will be of assistance.

Yours truly,

Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch