14 June 2002 External T.I. 2002-0127955 - RRIF TRANSFER TO DEPENDANT CHILD

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 CCRA.

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

Principal Issues: Can amount be transferred out of a RRIF on a tax-deferred basis to an infirm adult child of the annuitant of the RRIF on the death of the annuitant?

Position: The amount may be transferred on a tax-deferred basis to an RRSP, a RRIF or an annuity under which the child is the annuitant, if the amount is a "designated benefit" as that term is defined in the Act.

Reasons: The Act provides for tax-deferred transfers of amounts between registered plans for the benefit of dependent children in certain circumstances. An infirm adult child must be financially dependent on the annuitant at the time of death to qualify for the tax-deferred transfer.

XXXXXXXXXX 2002-012795
Karen Power, CA
(613) 957-8953
June 14, 2002

Dear XXXXXXXXXX:

Re: Financially Dependent Disabled Adult Child

We are writing in reply to your letter of March 7, 2002, requesting a ruling that will permit you to transfer on a tax deferred basis funds held in your registered retirement investment fund ("RRIF") to your severely handicapped adult daughter.

Your daughter is severely mentally and physically handicapped. She currently receives an Assured Income for the Severely Handicapped of $XXXXXXXXXX per year from the government of Alberta. This is your daughter's only source of income and she will never obtain or hold any income-producing job.

Our Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R5 entitled Advanced Income Tax Rulings, dated May 17, 2002. As discussed in our telephone conversation (Power/XXXXXXXXXX ) the Directorate would be prepared to rule on the issue of financial dependence, consequently we have enclosed a copy of IC 70-6R5 for your information should you wish to pursue this avenue. The foregoing comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA").

The CCRA has published the enclosed Information Sheet, RC4178 entitled "Death of a RRIF Annuitant", which provides general information about the taxation of amounts held in a RRIF at the time of the death of the last annuitant under a RRIF and the taxation of any amounts paid out of a RRIF because of the annuitant's death. We have highlighted several of the relevant sections and our comments will refer to the relevant sections of the Information Sheet.

Upon the death of the last annuitant of a RRIF, subsection 146.3(6) of the Income Tax Act (the "Act") deems the annuitant to have received immediately before death an amount out of the RRIF equal to the fair market value of the property at the time of death. This amount is included in the deceased annuitant's income for the year of death pursuant to paragraph 56(1)(t) of the Act

While an amount must be included in the deceased annuitant's income for the year of death, subsection 146.3(6.2) of the Act may reduce this income inclusion by permitting a deduction from the deceased annuitant's income for the year of death of an amount not exceeding a specific percentage of the total "designated benefits" in respect of the RRIF. Please refer to the Optional reporting section and Chart 2 of the Information Sheet.

A "designated benefit" is defined in subsection 146.3(1) of the Act to mean the total of amounts paid out of or under the RRIF after the last annuitant's death to an individual that would be a "refund of premiums" had the fund been an unmatured registered retirement savings plan ("RRSP"). A "refund of premiums" is defined in subsection 146(1) of the Act to mean a payment to a child or grandchild of the last annuitant who was financially dependent on the annuitant for support at the time of the death.

An amount that qualifies as a designated benefit is taxable to the recipient child or grandchild in accordance with subsection 146.3(5) and paragraph 56(1)(t) of the Act. If the child or grandchild was dependent on the last annuitant because of a physical or mental infirmity, the designated benefit is also an "eligible amount" pursuant to subsection 146.3(6.11) of the Act. A deduction under paragraph 60(l) of the Act is available to offset the recipient's income inclusion where the eligible amount is transferred to an RRSP, RRIF or an annuity under which the child or grandchild is the annuitant. Please refer to the Qualified beneficiaries - transfers section of the Information Sheet

Financial Dependence

It is assumed that, unless the contrary is established, a child was not financially dependent on the annuitant at the time of the annuitant's death if the income of that child for the taxation year preceding the year of death exceeded the basic personal credit in subsection 118(1) of the Act ($XXXXXXXXXX for 2001). To establish the contrary, the child or the child's legal representative may write to the tax services office outlining the reasons why the child should be considered financially dependent on the annuitant at the time of death. The factors that would be considered when establishing the existence of a child or grandchild's financial dependence include:

1. the income of the child from all sources;

2. the cost of living (including the cost of the child or grandchild's medical or special care requirements being paid by the annuitant at time of death) and the ability of the child to provide for self-support;

3. the support provided to the child from sources other than income (including the annuitant).

Where the annuitant can substantiate that he or she is required to financially support the child or grandchild because the cost of the child or grandchild's special needs exceed the child or grandchild's income, an argument may be made that the child or grandchild is financially dependent on the annuitant. This Directorate can only make this determination when all of the facts are presented in the context of an application for an advance income tax ruling.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R5.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

ENCLOSURES

- 3 -