| 19(1) | File No. 5-8463 |
| D.S. Delorey | |
| (613) 957-3495 |
September 27, 1989
Dear Sirs:
This is in reply to your letter of July 27, 1989 concerning the provisions of paragraph 60(l) of the Act.
Your letter concerns the possibility of effectively converting to a 10-year term a term certain annuity having a longer term. The assumed circumstances are as follows:
(a) An annuitant is 65 years of age and has $100,000 in his registered retirement savings plan (RRSP).
(b) In year 1, the RRSP is annuitized into a term to 90 annuity with annual payments of approximately $11,000 to commence in year 2.
(c) The annuitant prefers to receive the annuity payments over a 10-year period.
(d) A 10-year term certain annuity would yield income of approximately $17,000 per annum.
To give effect to the preference mentioned in (c) above, you suggest that the following steps could be taken:
(e) In year 2, the annuitant could commute the term to 90 annuity prior to the date of the first annuity payment, retain $17,000 and directly transfer the remainder into a term to 90 annuity with payments to commence in year 3.
(f) In year 3, the annuitant could commute the term to 90 annuity referred to in (e) above prior to the date of the first annuity payment, retain $17,000 and directly transfer the remainder into a term to 90 annuity with payments to commence in year 4.
(g) The procedures in (f) above could be repeated until all registered funds have been paid out over a 10-year period.
With respect to the transferred amounts referred to in (e) and (f) above, you suggest that a deduction is available under paragraph 60(l) such that the annuitant would be taxed on only the $17,000 retained. You ask for our comments on the above arrangement, particularly
(h) whether the commutation payment under the annuity purchased pursuant to paragraph 60(l) (i.e., the payment resulting from the commutation in (f) above) is considered to be an amount that falls within clause 60(l)(v)(c) of the Act, and
(i) whether Revenue Canada, Taxation finds the type of arrangement described above to be offensive under any provisions of the Act.
For your information, we are not prepared to provide interpretations with respect to actual and completed transactions. Such transactions may, however, be discussed with officials at your local district taxation office to ascertain their income tax implications. Further, as indicated in paragraph 23 of our Information Circular No. 70-6R, we do not provide written opinions on proposed transactions. However, we are prepared to provide you with the following general comments.
Clause 60(1)(v)(C) of the Act concerns a direct transfer from an RRSP held by one issuer to an RRSP of the annuitant held by another issuer. Where the requirements of paragraph 60(1) are otherwise met, the premium paid to the second issuer will be deductible by the payer under that paragraph to the extent that it does not exceed an amount referred to in clause 60(1)(v)(C). That is, the payment by the annuitant to the second issuer will be deductible to the extent that it does not exceed "an amount included in computing his income for the year as a consequence of a payment described in subparagraph 146(2)(b)(ii) of the Act". Where the amount transferred directly to the second issuer relates to a commutation under clause 60(1)(ii)(e), it is our view that the commuted amount is included in the annuitant's income as a consequence of a payment described in subparagraph 146(2)(b)(ii). Thus, a deduction would be available under paragraph 60(1) in respect of that amount.
The foregoing is an expression of opinion only and as such it is not binding on the Department. We trust however that our comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate