B.G. Dodd (613) 957-9769
October 30, 1987
Dear Sirs:
We are writing in reply to your letter dated September 8, 1987 concerning the provisions of section 138.1 of the Income Tax Act (the "Act") dealing with segregated funds.
You refer to a situation in which it is intended that a policy which is a segregated fund policy, as referred to in paragraph 138.1(1)(a) of the Act, will be registered as a retirement income fund ("RRIF") as defined in section 146.3 of the Act. You note that in the case of a segregated fund policy which is issued as a registered retirement savings plan (RRSP), subsection 138.1(7) of the Act deems the policyholder to be a trust described by paragraph 149(1)(r) of the Act. It is your view that the deeming provisions of subsection 138.1(7) of the Act do not apply to a segregated fund policy that is issued or effected as an RRIF with the result that the income and capital gains of the related segregated fund trust which are allocated in the year to the policyholder may be taxable to the policyholder on a current basis even though the segregated fund policy is an RRIF.
We concur with your view that subsection 138.1(7) of the Act will not have application in the case of a segregated fund policy that is issued or effected as an RRIF. As the Department of Finance is responsible for the formulation and development of tax policy, you may wish to bring . the matter to the attention of that Department for consideration.
Yours truly,
for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch