17 April 2001 External T.I. 2001-0064215 - RRSP REFUND OF PREMIUMS SPOUSAL TRUST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Can payments out of an RRSP or RRIF be made to a spousal trust, be treated as a refund of premiums and be transferred to an RRSP.

Position:

An amount can be treated as a refund of premiums but it cannot be transferred to an RRSP or RRIF if it is not, in fact paid to the spouse (or transferred to the RRSP or RRIF on the spouse's behalf).

Reasons:

The Act allows an amount paid from an RRSP to a deceased annuitant's estate to be treated as a payment received by the spouse and not as a payment received by the estate. If the amount is then transferred or vested by the estate into a spousal trust in accordance with the testamentary requirements applicable to the estate, it will not, in fact, be paid to the spouse. Accordingly a transfer of the amount as a refund of premiums to an RRSP or a RRIF cannot be made under subsection 60(l). A transfer may only be made to an RRSP or RRIF under which the spouse is the annuitant, where it is made by or on behalf of the spouse.

It is possible that a payment by a spousal trust may be made to an RRSP if it is paid on behalf of the spouse (either as a capital or income distribution from the trust). However, no one other than an annuitant may have an interest in an RRSP (except as a beneficiary of the RRSP on the death of the annuitant). Accordingly a spousal trust can not retain any beneficial interest in an RRSP (except as a beneficiary) and a surviving spouse may not have only a life interest in the RRSP.

The same and/or similar provisions apply to the transfer of amounts out of a RRIF.

XXXXXXXXXX 		2001-006421
W. C. Harding
April 17, 2001

Dear XXXXXXXXXX:

Re: Designation of Refund of Premiums paid out of an RRSP or RRIF

This is in reply to your letter of December 21, 2000, in which you asked if a designation of an amount as a refund of premiums can be made with respect to the payment of an amount out of an RRSP or a RRIF in certain situations, and whether the amount designated can then be transferred to an RRSP or RRIF using paragraph 60(l) of the Income Tax Act (the "Act").

Although you have asked for our technical interpretation in respect of a hypothetical situation, it appears that your request may involve a transaction or series of transactions contemplated by a specific taxpayer. The Canada Customs and Revenue Agency (the "CCRA") does not provide written comments on specific proposed transactions other than in reply to advance ruling requests submitted in the manner set out in Information Circular 70-6R4 Advance Income Tax Rulings, available on the internet at www.ccra-adrc.gc.ca. However, we are able to offer the following general comments on the relevant provisions of the Act that may apply. Please note that these comments are general in nature, and may or may not apply in a specific situation. As such, they are not binding on the CCRA.

The situations you are considering are those where the annuitant of an RRSP or a RRIF has died, has not named his or her spouse as the continuing annuitant under the plan, and has named the estate of the deceased as the beneficiary of the plan. You also limited the situations to those where the will of the deceased creates one or more testamentary trusts including a spousal trust.

RRSPs

In the circumstances described, subsection 146(8.8) of the Act will apply to include an amount equal to the fair market value of the RRSP at the time of the annuitant's death, in the income of the deceased. However, when an amount is paid out of an unmatured RRSP to the legal representative of the deceased annuitant of the RRSP, and a portion of the amount would have been a "refund of premiums", as defined in subsection 146(1) of the Act, if it had been paid to a beneficiary of the deceased's estate, the legal representative and the annuitant's spouse may make a joint designation in accordance with subsection 146(8.1) of the Act in respect of all or a part of the portion of the payment that would have been a refund of premiums. The amount designated is thereby deemed to be an amount received by the beneficiary (and not by the representative) at the time it was paid to the representative, as a refund of premiums. The designation will permit the legal representative of the deceased to claim a deduction under subsection 146(8.9) of the Act in computing the deceased's income. In effect, the deduction allows the income of the deceased to be reduced by the amount of the deduction claimed but also results in the inclusion of an equal amount in the income of the beneficiaries of the estate, to the extent the deduction relates to the amount deemed to have been received by each beneficiary as a refund of premiums.

Subsection 146(8.1) of the Act does not result in, nor require, any amount to be paid to the beneficiary. Accordingly, an amount received by an estate that is the subject of a designation may still be administered in accordance with the terms of the will of the deceased or any testamentary laws as may be applicable. However, paragraph 60(l) of the Act only permits a deduction for the amount included in a taxpayer's income as a refund of premiums, to the extent it is paid by or on behalf of the taxpayer to an RRSP or RRIF under which the taxpayer is the annuitant. Accordingly, if an amount that is designated as a refund of premiums is paid to a testamentary trust, it may not then be paid by the trust to an RRSP or a RRIF of a beneficiary because the payment would not be made by or on behalf of the beneficiary.

It must also be noted that no person other than the annuitant of an RRSP may have an interest in the RRSP (except as a beneficiary on the death of the annuitant). Therefore, a trust could not acquire an interest in the RRSP or RRIF. However, there is no provision under the Act that prevents a trust from being a beneficiary of an RRSP. Accordingly, it may be possible to name a trust as the beneficiary of the RRSP on the annuitant's death.

Subsection 146(8.91) of the Act provides similar rules to those of subsection 146(8.1) of the Act, for the designation of amounts that the deceased annuitant's legal representative becomes entitled to receive as a consequence of the annuitant's death. In this case, the designation is only available to the spouse of the deceased and provides that the spouse will become the annuitant of the RRSP. This provision cannot apply to a spousal trust. Furthermore, a trust cannot, in any event, be the annuitant of an RRSP. It should also be noted that by definition, a "refund of premiums" cannot be made out of a matured RRSP.

To summarize, paragraph 60(l) of the Act will not generally apply to allow a transfer of an amount to an RRSP where the amount is not received by a beneficiary nor paid by the estate of the deceased to the RRSP on behalf of the beneficiary. In particular, paragraph 60(l) of the Act cannot apply where the amounts are first transferred to a testamentary trust.

RRIFs

The rules governing RRIFs are similar to those for RRSPs. Subsection 146.3(6) of the Act requires an amount, equal to the value of a RRIF at the time of death of the last annuitant, be included in that deceased annuitant's income in the year of death. Subsection 146.3(1) of the Act then allows the deceased annuitant's legal representative and an individual to designate all or a portion of the amount received by the representative to be a "designated benefit" of the individual and subsection 146.3(6.1) of the Act deems the designated benefit of the individual to be an amount received by the individual and not by any other person.

"Designated benefits" are defined, in general terms, as amounts that would have been refunds of premiums had the RRIF been an unmatured RRSP. Subsection 146.3(6.2) of the Act then allows a deduction of all or a portion of the designated benefit from the amount included in the deceased annuitant's income.

Subsection 146.3(6.11) of the Act also provides that all or a portion of the designated benefit (as determined under the provision) will be an "eligible amount" as defined under, and for the purposes of, paragraph 60(l) of the Act, if the individual is the spouse of the deceased annuitant or is a child or grandchild of the annuitant who was dependent because of physical or mental infirmity on the annuitant. Paragraph 60(l) of the Act then allows a deduction for the amount transferred to an RRSP or RRIF as described above. Clause 60(l)(v)(B.2), however, indicates that the eligible amount must be that of the taxpayer who is the annuitant of the RRSP or RRIF to which the amount is being transferred.

As discussed above with respect to RRSPs, it is possible to have an amount treated as a receipt of an individual but still have it paid to a testamentary trust. However, the trust can not retain any beneficial interest in the RRSP or RRIF unless it is possible to name the trust as the beneficiary of the RRSP on the annuitant's death as discussed above.

To summarize, paragraph 60(l) of the Act is intended to apply to RRIFs in the same general manner that it applies to RRSPs. The paragraph will not apply to allow a transfer of an amount to an RRSP where the amount is not received by a beneficiary nor paid by the estate of the deceased to the RRSP on behalf of the beneficiary. In particular, paragraph 60(l) of the Act cannot apply where the amounts are first transferred to a testamentary trust.

We trust this explanation will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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