Regulation 304

The correspondent described two annuity contracts that specified a lump-sum payment on the individual's death, provided that the sum of annuity payments received before death did not exceed the one-time premium paid at the outset. The only difference between the contracts was that the first specified larger annuity payments, so that the lump-sum was mathematically certain to become payable either before the individual turned 88 or not at all. Under the second, the sum could be payable as late 93 years of age. CRA stated that, provided the conditions of s. 304(2)(b) were otherwise met, the first contract would qualify as a prescribed annuity contract and the second would not.

A prescribed annuity contract (PAC) generally provides a more beneficial tax treatment to the annuitant than other types of annuities, which are subject to the accrual rules in s. 12.2(1). One of the requirements to be a PAC under Reg. 304(1)(c) is the requirement in Reg. 304(1)(c)(iii)(A) that the “holder” of the annuity contract be an individual (other than a trust) or a listed type of trust, i.e., an alter ego trust, joint spousal or common-law partner trust, post-1971 spousal or common-law partner trust, or qualified disability trust.

CRA rejected a suggestion that a PAC could be held in a non-listed trust in reliance on Reg. 304(3)(a), which deems the annuitant under an annuity contract to be the holder of the contract where the contract is held by another person in trust for the annuitant (defined in Reg. 304(4) as a person who is entitled to receive annuity payments under the contract) – so that (it was suggested) the holding of the mooted PAC by a non-listed trust could be deemed to be its holding by an individual beneficiary of the trust.

CRA indicated that Reg. 304(3)(a) could, for instance, permit a parent to hold an annuity contract for the parent’s child until the attainment of a specific age, so that Reg. 304(3)(a) would deem the child to be the holder of the contract, such that there thus would be an individual holder who satisfied Reg. 304(1)(c)(iii)(A). CRA concluded that “the expression ‘in trust’ in paragraph 304(3)(a) … is more akin to a nominee [arrangement]” and is not meant to accommodate non-listed trusts.

After paraphrasing Reg. 304(3)(a), CCRA stated:

[A] beneficiary of a trust who holds an annuity contract is not an annuitant under the annuity contract solely because of being a beneficiary of the trust. Consequently, paragraph 304(3)(a) of the Regulations will not have the effect of deeming the beneficiary to be the holder of the annuity contract.