Principal Issues: How is the minimum amount calculated when the property held in connection with a RRIF has no value?
Position: If fair market value is nil then minimum payment is nil. However, the fair market value is a question of fact and in the situation described, it is our view that it would not be nil.
Reasons: As per definition of minimum amount under 146.3(1).
XXXXXXXXXX 2009-034296 Andrea Boyle, CGA
May 26, 2010
Dear XXXXXXXXXX :
Re: Minimum Amount - Registered Retirement Income Fund
This in reply to your facsimile of September 30, 2009 in which you asked for clarification of the calculation of the minimum amount under a registered retirement income fund (RRIF).
More specifically, we understand that the life insurance company issues segregated fund annuity contracts which are registered as RRIF's and which contain guaranteed minimum withdrawal benefits (GMWB). Under the GMWB, the annuity contract guaranties that a stated amount will be paid every year as long as the annuitant is alive. You have also indicated that the annuity contracts are not held by a trust governed by the fund. You have requested clarification of the calculation of the minimum amount under the RRIF if the fair market value of all the properties held in connection with the RRIF is nil.
The particular situation outlined in your facsimile appears to relate to a factual one, involving specific taxpayers. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.
Where the RRIF does not govern a trust, the calculation of the minimum amount as defined in 146.3(1) would be "(A x B)" where "A" is the total fair market value of all properties held in connection with the fund at the beginning of the year and "B" is the relevant prescribed factor for the year.
Where a RRIF does not govern a trust, if the fair market value at the beginning of the year of all properties held in connection with the RRIF is nil, the minimum amount, as defined in subsection 146.3(1), will be nil for that year.
The determination of the fair market value of all properties held in connection with the RRIF is a question of fact. In order to make such a determination, it is necessary to review all the relevant facts and documents surrounding a particular situation. However, it is our view that the fair market value of all properties held in connection with a RRIF would not be nil when a contract provides a guaranteed minimum amount every year as long as the annuitant is alive.
The Income Tax Rulings Directorate does not provide opinions or advance income tax rulings concerning the "fair market value" of property. The carrier of a RRIF can contact their local Tax Services Office to discuss their valuation procedures if they have concerns.
We trust that these comments will be of assistance.
Yours truly,
Louise J. Roy, CGA
Manager
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch