Revenue Canada Revenu Canada Taxation Impôt
Head Office Bureau principal
Your file Votre reference Our file Notre reference M.J. Loveday (613)957-8961
March 10, 1988
Dear XXXX
Re: RRSP Proceeds out of an Annuity Contract Received by a Corporation ----------------------------------------------------------------------
We are writing in response to your letter of November 9, 1987 concerning the taxation of certain death benefits received by a corporation out of a deceased's registered retirement savings plans (RRSPs), within the meaning of paragraph 146(1)(i) of the Income Tax Act.
The issues you raised appear to be in respect of a specific situation. We are not prepared to give an opinion on the details of a particular case. However, the following general comments may be of some interest to you. Unless otherwise specified all references to statutes are to the Income Tax Act ("the Act").
Pursuant to paragraph 146(1)(j) a RRSP means a contract which will provide "a retirement income" at maturity. Paragraph 146(1)(i.1) states that "a retirement income" means one of the annuities described thereunder. Then, under subsection 248(1) and paragraph 138(12)(f), a "life insurance policy" is defined for purposes of the Act as including an annuity contract. Accordingly, in our view, a particular annuity contract which is a RRSP may also be a life insurance policy within the meaning of subsection 248(1).
Where a registered annuity is a life insurance policy, amounts received, in respect of the disposition of such a policy, are specifically excluded from taxation under subsection 148(1). As mentioned in your letter, the disposition of such an annuity results in a tax liability to the deceased annuitant under subsection 146(8.8).
Generally proceeds of a life insurance policy received by a corporate beneficiary are included in the calculation of the capital dividend account (CDA) under subparagraph 89(1)(b)(iv). The amount of proceeds added into the CDA is reduced by the corporation's adjusted cost basis of the policy. I In circumstances where the premium payments have been made by the individual annuitant under the policy, the CDA of a corporate beneficiary would be increased by the full amount of the life insurance proceeds received.
While these opinions are not binding on the Department we hope that they will be of assistance to you in resolving this matter.
Yours truly,
Chief Financial Institutions Section Financial Industries Division Rulings Directorate