2019-0799121C6 2019 CLHIA Conference Roundtable Question 7

Principal Issues: Whether a life annuity contract can be registered as a TFSA?

Position: No.

Reasons: For commercial reasons, a life annuity contract is typically non-commutable and therefore will not satisfy the registration condition in paragraph 146.2(2)(2)(e).

Author: Schnitzer, Irina
Section: 146.2(2)(e)

CLHIA Roundtable – May 2019

Question 7 – Life Annuities within Tax Free Savings Accounts

Background

Subparagraph (b)(ii) of the definition “qualifying arrangement” in subsection 146.2(1) indicates that a Tax- Free Savings Account can be structured as “an annuity contract with an issuer that is a licensed annuities provider”. Subparagraph (b)(i) of that definition permits trusteed TFSAs, and paragraph (b) of the definition of “qualified investment” in subsection 207.01(1) provides that an annuity contract can, subject to certain conditions, be held as an asset within a trusteed TFSA.

Subsection 146.2(2) provides that a “qualifying arrangement” must:

(e)   … provide that, at the direction of the holder, the issuer shall transfer all or any part of the property held in connection with the arrangement (or an amount equal to its value) to another TFSA of the holder;

“Life annuities” may contain both benefits payable during a fixed period regardless of the survival of the measuring life, and benefits that are purely contingent on that life’s continuing survival.  The latter are not generally commutable, since permitting an annuitant who, subsequent to issue of the annuity, discovers his or her reduced life expectancy, to liquidate the contract for the full present value of life contingent benefits would prejudice the interests of other annuitants under similar contracts, whose benefits rely, in part, on the forfeiture of ongoing life contingent benefits when an individual dies earlier than otherwise expected.

Question

Does the CRA agree that a life annuity contract that lacks commutability with respect to any life contingent benefits would not satisfy the condition contained in paragraph 146.2(2)(e)?

CRA Response

Yes. In the absence of such a commutation option, a life annuity contract will not satisfy paragraph 146.2(2)(e) and therefore cannot be registered as a TFSA. In addition, it is not a qualified investment for a trusteed TFSA.

Irina Schnitzer
2019-079912
May 14, 2019

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