Principal Issues: If a taxpayer can establish that a foreign-issued annuity contract is a prescribed annuity contract, and hence that the amount required by section 12.2 to be included in the taxpayer's income in respect of the contract is nil, does the Agency agree that the contract is excluded from the mark-to-market rules?
Position: We do not agree.
Reasons: There is no basis to argue that an amount equal to nil is included in the taxpayer's income under section 12.2 of the Act since this section does not apply with respect to prescribed annuity contracts.
CALU - Conference for Advanced Life Underwriting (2004)
Question 2
Foreign Investment Entity Rules and Foreign-Issued Annuity Contracts
The legislative proposals for the taxation of non-resident trusts and foreign investment entities that were tabled in the House of Commons on October 30, 2003 as a Notice of Ways and Means Motion include rules specifically applicable to foreign-issued insurance policies. If a policy is subject to these rules, the holder is required to apply the mark-to-market regime in determining income from the policy.
Certain insurance policies are excluded from these rules. By virtue of subparagraph 94.2(11)(c)(iii) of the proposed legislation, a life insurance policy is excluded for a particular taxation year if the holder can establish to the CRA's satisfaction that the holder has included the amount, if any, required by section 12.2 in computing the taxpayer's income for the year. Where a taxpayer holds an interest in a foreign-issued annuity contract that is a prescribed annuity contract, the accrual rules in section 12.2 do not apply to the annuity contract. Thus, no amount is required by section 12.2 to be included in the taxpayer's income.
Question:
If a taxpayer can establish that a foreign-issued annuity contract is a prescribed annuity contract, and hence that the amount required by section 12.2 to be included in the taxpayer's income in respect of the contract is nil, does the Agency agree that the contract is excluded from the mark-to-market rules?
Agency's Response
We do not agree. There is no basis to argue that an amount equal to nil is included in the taxpayer's income under section 12.2 of the Act since this section does not apply with respect to prescribed annuity contracts.
A foreign issued annuity contract, that is not a prescribed annuity contract, may be excluded from the mark-to-market rules under subparagraph 94.2(11)(c)(iii) of the proposed legislation, if the taxpayer can establish to the satisfaction of the Minister, that an amount has been included in the taxpayer's income under section 12.2 of the Act.