18 October 2001 Internal T.I. 2001-0083777 - CALCULATION OF RRIF FAIR MARKET VALUE

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Can we advise how to calculate interest in respect of index-linked term deposit products, for purposes of calculating FMV for a RRIF?

Position: No.

Reasons: FMV is question of fact at a particular time; it may not correspond to cost adjusted for accrued interest to date of determination.

XXXXXXXXXX 				2001-008377
P. Kohnen, CMA
October 18, 2001

Dear XXXXXXXXXX:

Re: Request for technical interpretation - calculation of RRIF fair market value

This is in reply to your e-mail of May 4, 2001, addressed to Ron Ryan in the Client Service Directorate, requesting our views regarding the calculation of opening balances and date of death balances in respect of a registered retirement income fund ("RRIF") which has invested in Index-Linked term deposit products.

The carrier of a RRIF is generally required to make payments each year to the plan annuitant, or, where applicable, to the surviving spouse or common-law partner, of at least the lesser of the fair market value of the property held in the plan or the "minimum amount". The specific rules are detailed in the definition of "retirement income fund" contained in subsection 146.3(1) of the Income Tax Act ("the Act"). In the event a trustee does not comply with this requirement, the provisions of subsection 146.3(11) of the Act will apply and the plan will cease to be a RRIF. The term "minimum amount" is defined in subsection 146.3(1) of the Act. Basically, the minimum amount is nil in the first year of the plan and, thereafter, the fair market value of the property at the beginning of each year multiplied by a prescribed factor.

Subsection 146.3(6) of the Act requires that where the last annuitant of a RRIF has died, an amount equal to the fair market value of the property of the fund at the date of death is deemed to have been received by the deceased annuitant immediately before the date of death.

The term "fair market value", as it applies here, is not defined in the Act and, therefore, takes on its ordinary meaning in its application under the Act. Black's Law Dictionary (6th edition) defines fair market value as "the amount at which property would exchange hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts".

It should be noted that the fair market value of an interest bearing product at a given point in time will not necessarily correspond to the cost value of the product, adjusted for any interest accrued to the date of determination. The fair market value will be a question of fact that is dependent upon various market factors and expectations.

It is the responsibility of the trustee of a RRIF to file the appropriate information returns for the trust and to report, as required, the fair market value of the property held in the trust. Where necessary, it may be appropriate for the trustee to use expert valuators to determine the necessary information. However, this is not specifically required under the Act.

The Income Tax Rulings Directorate does not provide opinions or advance rulings concerning the "fair market value" of property. Generally, however, it is our understanding that where an investment is freely traded in the market, on a stock exchange or similar forum, the bid/ask quotation or the listed price on the valuation date would reflect the fair market value. The Canada Customs and Revenue Agency provides advice on these matters through the Valuations Sections in the tax services offices. In Metropolitan Toronto, you may address your enquiry to Mr. Tim Dunham at the Toronto Centre Tax Services Office. Mr. Dunham's telephone number is (416) 952-6051.

We trust that the above comments are of assistance.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate