2015-0596781E5 Transfer - RRIF Excess to a Life Annuity

Principal Issues: 1) Is the offsetting deduction claimed on an individual’s tax return equal to the excess amount used to purchase a life annuity? 2) Is Form T2030 used to directly transfer the excess amount? 3) What is the meaning of partial commutation of a life annuity? and 4) What are the revised minimum withdrawal factors announced in the 2015 Budget?

Position: 1) Providing the entire excess amount is transferred an offsetting deduction can be claimed. 2) Yes. 3) Provided general comments on the meaning of partial commutation. 4) Provided an excerpt from the 2015 Budget regarding revised factors.

Reasons: 1) Legislation. 2) Prescribed form. 3) Legislation. 4) Factors stated in 2015 Budget.

Author: Allen, Gary
Section: 146.3(2), 60(l)

XXXXXXXXXX                                2015-059678
                                                        G. Allen

August 8, 2015

Dear XXXXXXXXXX:

Re: Registered Retirement Income Funds

We are writing in response to your letter, dated June 7, 2015, wherein you had further questions regarding registered retirement income funds (RRIF). Specifically, you have raised questions about RRIF excess amounts, the form to use for direct transfers from a RRIF, the meaning of partial commutation and the new prescribed factors for RRIF minimum withdrawals.

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Our Comments

Any amount withdrawn from a RRIF above the required minimum amount for the year is referred to as a RRIF excess amount. Both minimum and RRIF excess amounts must be included in a taxpayer’s income in the year withdrawn.  If a taxpayer uses the entire RRIF excess amount withdrawn from a RRIF to purchase a life annuity, the taxpayer can claim an offsetting deduction equal to the amount of the RRIF excess amount on line 232 of the taxpayer’s income tax return. As a result, no tax will be paid on the RRIF excess amount withdrawn in the year. However, all future life annuity payments must be included in the taxpayer’s income and will be subject to tax in the year the payments are received by the taxpayer.

With respect to your question regarding Form T2030 Direct Transfer under Subparagraph 60(l)(v), we confirm that this is the form to be used by a RRIF annuitant to request the RRIF carrier to directly transfer a RRIF excess amount to purchase a life annuity with an insurance company. The insurance company should issue a receipt showing the date of the transfer and the RRIF excess amount used to purchase the life annuity. This receipt will provide support for the offsetting deduction claimed on line 232 of the taxpayer’s income tax return.

A partial commutation of a life annuity occurs where the annuitant converts a portion of their future periodic life annuity payments and receives a lump sum amount in exchange for the portion of the life annuity payments forgone. The life annuity payments that continue to be paid after receipt of the lump sum amount will be adjusted to take into account the partial commutation. 

In terms of your question regarding the revised RRIF minimum withdrawal factors announced in the 2015 Budget, we have enclosed an excerpt from the Canada Revenue Agency website that shows the previous factor that was used and the new factor to be used to calculate the RRIF minimum amount.

We trust that our comments will be of assistance to you.

Yours truly,

Lita Krantz, CPA, CA
for Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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