Subsection 147.4(1) - RPP annuity contract
Administrative Policy
12 September 2019 External T.I. 2019-0802301E5 - Annuity purchased from foreign pension
Before noting that s. 147.4(1) does not apply to annuities purchased from foreign pension plans, so that a retiree - whose former non-resident employer determined to wind-up a foreign pension plan by using funds in the plan to purchase annuity contracts for each retired member – was required under s. 56(1)(a)(i) to include the full fair market value of the annuity in income in the wind-up year, CRA stated:
Where the conditions in subsection 147.4(1) are met, the individual is deemed not to have received an amount from the RPP as a result of acquiring the annuity and any amounts received under the contract are deemed to be amounts received under the RPP. As a result, there is no immediate taxation on the acquisition of the annuity and any payments under the contract are included in the recipient’s income in the year in which they are received.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(a) - Subparagraph 56(1)(a)(i) | no rollover treatment when an annuity is purchased out of a foreign pension plan | 184 |
7 March 2014 External T.I. 2012-0458781E5 - Annuity in respect of pension obligation
After the employer has wound up its registered pension plan ("RPP"), it is discovered that the plan administrator failed to acquire an annuity for one individuals who had elected at the time of wind-up that a deferred annuity be purchased for him or her out of the pension plan. The employer is looking to acquire an annuity for the individual in the current year in order to provide the stated monthly pension when the individual turns age 65. Will there be an inclusion in the individual's income when the annuity is acquired? CRA responded:
Where the conditions under subsection 147.4(1)… are met, the individual is deemed not to have received an amount from the RPP as a result of acquiring the annuity and any amounts received under the contract are deemed to be amounts received under the RPP. As a consequence, there is no immediate taxation on acquisition of the annuity contract and any payments under the contract are included in the recipient's income in the year in which they are received.
However [here]… the purchase of the annuity contract was not made with funds from the RPP and therefore the conditions under subsection 147.4(1)… have not been met. Consequently, the individual…would be required to include the fair market value of the annuity contract in their taxable income in the year of purchase of the annuity under subparagraph 56(1)(a)(i)… .
16 November 2005 Internal T.I. 2005-0153071I7 F - Interprétation de l'alinéa 147.4(1)c)
Regarding whether it would be permitted for an additional premium to subsequently be paid under the terms of the annuity contract for new employees who subsequently become annuitants under that contract, CRA stated:
To be an annuity contract within the meaning of subsection 147.4(1), it is our view that the contract can only allow for one premium at the time of acquisition or thereafter. Thus, any additional premiums that the employer would like to pay after the annuity contract is issued would have to be the subject of a new contract.
21 September 1999 External T.I. 9915915 F - CONTRAT DE RENTE ET RPA
In finding that the issuance of an annuity in satisfaction of a registered pension plan’s actuarial surplus would not satisfy s. 147.4(1), the Department stated:
The actuarial surplus of a defined benefit plan is the excess of the value of the assets over the members' benefit entitlements. Consequently, we are of the view that the deeming rules set out in subsection 147.4(1) do not apply where a taxpayer acquires an annuity contract in satisfaction of the taxpayer’s rights to the actuarial surplus, as this entitlement is not an entitlement to benefits under the RPP.
The Department accepts that an RPP may be amended prior to termination in order to use the actuarial surplus to enhance the benefits provided under the RPP. However, the amendments to the benefits must comply with the limits permitted under the Income Tax Act and Regulations. In those circumstances, subsection 147.4(1) could apply if the taxpayer acquires an annuity contract in satisfaction of the taxpayer’s rights to benefits as amended by the RPP.
In order to determine whether the acquisition of an annuity contract has tax consequences to the member or whether subsection 147.4(1) applies, it is necessary to determine who is the owner of the annuity contract. … Consequently, where an RPP owns an annuity contract, there are no consequences to the RPP members.