Principal Issues: [TaxInterpretations translation] Can an annuity contract described in subsection 147.4(1) acquired under an RPP be subject to more than one premium?
Position: No
Reasons: Paragraph 147.4(1)(c) provides that the contract must allow for only one premium at or after the time the individual acquires the right.
November 16, 2005
Headquarters Headquarters Registered Plans Directorate Income Tax Rulings Directorate Attention: Ms. Maureen Quigg Michel Lambert 957-8953
2005-015307
Application of subsection 147.4(1)
This is in response to your email regarding a question you received on September 13, 2005 on the application of subsection 147.4(1).
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
The taxpayer suggests two interpretations of subsection 147.4(1) and asks which is correct.
Under the first interpretation, an annuity contract can be acquired under a registered pension plan (RPP) only with a single premium. Thus, any additional premium that an employer would wish to pay for annuity purchases for new employees or employees already covered pursuant to the contract would be required to be pursuant to a new contract in order to comply with the provisions of subsection 147.4(1).
Under the second interpretation, it would only be possible to pay an additional premium under an annuity contract for new employees who become annuitants under the annuity contract. However, this would not be possible for employees who are already annuitants under the annuity contract.
Our Opinion
Subsection 147.4(1) applies where an individual acquires an interest in an annuity contract in full or partial satisfaction of the individual's entitlement to benefits under an RPP if all of the conditions referred to in that subsection are satisfied. In particular, the only premium that is permitted to be paid under the contract at or after the time the interest is acquired is the premium that is paid at that time out of or under the plan to purchase the contract.
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.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that our comments are of assistance.
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch