7 May 1991 Internal T.I. 9108957 F - RRSP and Annuity Assignments

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.

Subject: RRSP AND ANNUITY ASSIGNMENTS

This is in reply to your memorandum of March 21, 1991 to the Head Office Audit Applications Division, which was referred to us for reply.

Your Memorandum pertains to a no-names submission to your office 24(1) for one of their clients

24(1)

While their submission should more appropriately be submitted to us in the form of an advance income tax ruling, complete with all relevant details, because of the apparent urgency of the matter, we are agreeable to providing the comments that follow below. It must be noted, however, that the information submitted was not complete and we have not had an opportunity to review this issue with our legal advisors in depth.  Consequentially, our comments are only opinions and they should not be provided to the taxpayers as a binding position.

We do not know what type of annuities the taxpayer has and different provisions of the Act will apply depending on their type or source.

If any of the annuities were acquired under the terms of an RPP, section 254 of the Income Tax Act (the "Act") provides for their treatment as a continuation of the pension.  Therefore, paragraph 56(1)(a) of the Act would normally apply to include in income any amounts received out of, on account or in lieu of or in satisfaction of pension rights and would generally bring into income amounts received as proceeds of disposition of a right under the pension.

After informal consultations with legal services, we have concluded that in this case however,

24(1)

If the annuity is related to an RRSP it must be determined how the annuity was acquired.

When an RRSP matures its funds must be used to acquire a retirement income if the funds are not transferred out of the plan as otherwise permitted.  A retirement income is always acquired in the form of an annuity but this does not mean that the annuity replaces the RRSP or that the RRSP ceases to exist.  Instead the RRSP becomes a "matured" plan which remains subject to the provisions governing RRSPs in general.  These are quite different from the rules which govern when an annuity is acquired under a paragraph 60(1) of the Act roll as discussed below.

When the annuity exists as a mature RRSP paragraph 56(1)(h) of the Act requires the inclusion in income of all "benefits" as described under section 146 and this includes retirement income.  Section 146 does not directly discuss amounts received on dispositions, however, the rules for RRSPs in subsection 146(2) of the Act do, in part, require that:

(b)     a plan not provide for the payment of any benefit after maturity except:

(i)      by way of retirement income to the annuitant, ...and

(iii)      in respect of a commutation referred to in subsection

(c.2)      [which requires a commutation of an annuity which would otherwise be payable to a person other than the annuitant].

Accordingly, if one of the annuities in your case is, in fact, a "matured" RRSP, the proposed transaction can not be done without the commuted value of the RRSP being included in the beneficiary's income.

If an annuity is acquired through a paragraph 60(1) roll, paragraph 5(1)(d.2) of the Act requires any amount received from or as the proceeds of disposition to be included in income.  The wording however is similar to that of 56(1)(a) discussed above and in consequence.

24(1)

ChiefDeferred Income Plans and Trusts SectionFinancial Industries DivisionRulings Directorate