Principal Issues: [TaxInterpretations translation] Can a prescribed annuity contract encumbered by a moveable hypothec be a prescribed annuity contract?
Position: Yes.
Reasons: In line with our previous position.
Financial Strategies and Financial Instruments Roundtable
2006 APFF CONFERENCE
Question 3
Prescribed annuity and moveable hypothec
I.T.R.section 304 sets out the conditions for an annuity contract to be a "prescribed annuity contract" for a taxation year. Among other conditions, I.T.R. clause 304(1)(c)(iv)(D) provides that "no loans exist under the contract [and] the holder’s rights under the contract not be disposed of otherwise than on the holder’s death”.
The ITA includes annuity contracts in the definition of "life insurance policy" in subsection 138(12). The definition of "disposition" in I.T.A. subsection 148(9) provides that an assignment of all or any part of an interest in the policy for the purpose of securing a debt or a loan other than a policy loan, is not considered a "disposition".
Question
Can you confirm that the exception provided for in paragraph (f) of the definition of "disposition" in I.T.A. subsection 148(9) applies where a moveable hypothec that complies with the provisions of the Civil Code of Québec is granted on a "prescribed annuity contract" that otherwise satisfies all the criteria of I.T.A. section 304 for a taxation year, and that such contract will continue to qualify as a prescribed annuity contract if it is encumbered with a moveable hypothec?
CRA Response
In the situation where the annuitant of a prescribed annuity contract grants, in a taxation year, a moveable hypothec on the prescribed annuity contract in order to secure a loan, it is our view that the moveable hypothec, in and of itself, would not prevent the conditions of I.T.R. 304(1)(c)(iv)(D) from being satisfied. Consequently, a prescribed annuity contract subject to a moveable hypothec would continue to be a prescribed annuity contract.
Guy Goulet
(613) 957-9768
October 6, 2006
2006-019704