Dear Sirs:
24(1)
Re: Advance Income Tax Ruling
This is in reply to your letters of June 18, 1991 and August 14, 1991, initially in request of an interpretation and subsequently of an advance income tax ruling on the application of paragraph 146(1)(i.1) of the Income Tax Act (the 'Act') with respect to the issue of fixed term annuities as a retirement income option.
Since the subject matter of your request does not appear to relate to an actual proposed transaction we are unable to provide you with an advance income tax ruling as requested. However, we are prepared to provide the following general comments:
I. Paragraph 146(1)(i.1) defines "retirement income" as a life annuity as described by subparagraph 146(1)(i.1)(i), a fixed term annuity as described under subparagraph 146(1)(i.1)(ii), or a combination of the two.
Subparagraph 146(1)(i.1)(i) defines an acceptable life annuity. Abbreviated, the subparagraph states that: ["retirement income" means]
"(i) an annuity commencing at maturity ... payable to (A) the annuitant for his life, or (B) the annuitant for the lives, jointly, of the annuitant and his spouse and to the survivor of them for his or her life," [emphasis added]
Therefore, no matter what the wording of the preamble to subparagraph 146(1)(i.1)(i) is, an annuity included thereunder, must be a life annuity. In our opinion, an untenable position must result if the paragraph is read as you have suggested. A life annuity can not under the terms of the paragraph be created for some predetermined, fixed term of less than an annuitant's remaining life time.
Given the above, it follows that the term referred to in the preamble and calculated in accordance with subparagraph (ii) must refer to the guaranteed term of a life annuity.
Subparagraph 146(1)(i.1)(1)(ii) also provides that:
["retirement income" means]
"(ii) an annuity commencing at maturity...for a term of years equal to 90 minus [the age of the younger of the annuitant and his or her spouse at the time of maturity of the RRSP.]..."
Therefore a fixed term annuity that is shorter than this period can not comply with the provisions of the Act and this is consistent with what was stated in the Department's letter to your client ofAugust 25, 1989.
With respect to the quotation taken from the 1991 Delaney Report on RRSPs we can not make any conclusive remarks as to the basis for or the intent of the comments made. However, from our reading of the quotation, it appears to us that the author is simply stating that some issuers are now providing annuities with various guaranteed terms up to the maximum provided within the retirement income definition. If our understanding is correct, this quotation would be entirely consistent with our above comments.
With respect to the remaining publications referred to by you in your letter, we can not offer any comments but suggest that you contact their authors should you wish to determine the basis of their remarks.
We regret that we could not be of greater assistance to you in this matter but trust that our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch