21 November 1994 Internal T.I. 9419616 - RRSP TRUSTS AFTER THE DEATH OF THE ANNUITANT

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:

Treatment of income of RRSP Trust after death of annuitant

Position TAKEN:

Basically if not taxed in trust, then include in recipient's income as RRSP benefit.

Reasons FOR POSITION TAKEN:

Wording of various provisions in section 146

							November 21, 1994

	Head Office	Head Office
	T2/T3 Programs Division			Rulings Directorate
W. A. Mizuik, Chief			D. Duff
	T3 Programs Section			(613) 957-8953

	Attention:  Joe Hartwick
	              T3 Programs Section	5-941961

RRSP Trusts after death of Annuitant

This is in reply to your memorandum of December 8, 1992, requesting our opinion on the treatment of trusteed RRSPs on and after the death of the annuitant. We have also enclosed the file submitted from XXXXXXXXXX.

You indicated by telephone (Hartwick/Duff) that you would deal with the issue therein.

Your request resulted from XXXXXXXXXX

regarding the treatment of RRSP trusts after the death of the annuitant, in situations where the trustee is not notified until long after the death. Our understanding of the

XXXXXXXXXX

Taxation of Annuitant on Death

Where an annuitant of an RRSP dies before the maturity of the plan, he is deemed by subsection 146(8.8) to have received a benefit out of the RRSP equal to the fair market value of the property at the time of his death. This deemed benefit can be reduced, essentially by the refund of premiums pursuant to subsection 146(8.9). These provisions have recently been amended but the amendments are not relevant to this discussion.

Subsection 146(8) requires a taxpayer to include in income all amounts received in the year as a benefit out of an RRSP. A benefit is defined in subsection 146(1) to include any amount received out of an RRSP, but excludes the amount received by a person who is not the annuitant that was included in the annuitant's income pursuant to subsection 146(8.8). The wording in the exclusion refers to an amount that was included in the income of the annuitant, as opposed to an amount that was required to be included in the income of the annuitant. Consequently, it is our position that where the amount should have been included in the income of the annuitant but was not, and that return is now statute barred, the amount is included in the income of the recipient in the year of receipt as a benefit from the RRSP.

Taxation of RRSP Trust

Subsection 146(4) exempts an RRSP trust from Part I tax on its taxable income with certain exceptions, one of which is in paragraph (c) thereof, which refers to the period commencing at the start of the second year after the year of death.

XXXXXXXXXX

Presumably they base their position on paragraph 104(6)(b) which provides a deduction to a trust, including an RRSP trust, for an amount, that would be the income of the trust but for paragraph (b), that "became payable in the year to a beneficiary". Subsection 104(24) further stipulates that an amount is deemed not to have become payable unless it was paid or the beneficiary was entitled in the year to enforce payment thereof.

IT-286R2, in paragraph 2, states that a trust to which paragraph 104(6)(b) applies can deduct such part of its income as was payable in the year to a beneficiary. It also states that an amount is payable if it is paid or the beneficiary can enforce payment. Paragraphs 4 and 5 go on to state that an amount is not considered payable if the beneficiary can only enforce payment by either having the trust agreement amended or causing the trust to be wound up.

XXXXXXXXXX

Consequently, we cannot state that an RRSP trust will, in all circumstances, not become taxable at the end of the exempt period pursuant to paragraph 146(4)(c), but in many cases it will not. Refer to the following section for those situations where the income of the trust is nil because of the paragraph 104(6)(b) deduction and refer to the section entitled, Assessment of the RRSP Trust, for those situations where the 104(6)(b) deduction is not available.

Taxation of Beneficiaries after death of Annuitant

The first issue is whether the RRSP trust continues as such after the death of the annuitant.

XXXXXXXXXX

Paragraph 146(4)(c) clearly contemplates that an RRSP trust continues as such after the death of the annuitant.

XXXXXXXXXX

It has been the position of this Directorate that the RRSP trust continues as such.

As will be discussed in more detail below, it is our opinion that amounts paid out of the RRSP trust after the death of the last annuitant, where such amounts are what would otherwise be the income of the RRSP trust, are included in the definition of a benefit out of an RRSP. We note also that the section on page 18 of the T3 Guide and Trust Return, entitled Registered Retirement Savings Plan, suggests that such income should be reported on a T3. Since these amounts are benefits from an RRSP which must be included in income pursuant to subsection 146(8), they should be reported on a T4RSP, as required by Regulation 214(1).

Generally, subsection 104(13) is the complement to paragraph 104(6)(b); income of the trust that is paid or payable to the beneficiaries is deductible pursuant to the latter and must be included in the beneficiaries' income under the former. However, while paragraph 104(6)(b) applies to RRSP trusts, subsection 104(13) does not apply by virtue of the exemption in paragraph (a) of the definition of trust in subsection 108(4). Subsection 104(13) is not needed because these amounts are required to be included in the income of the recipient pursuant to subsection 146(8) when received.

The definition of benefit in subsection 146(1) includes any amount received out of or under an RRSP, but paragraph (c) excludes "an amount, or part thereof, received in respect of the income of the trust under the plan for a taxation year for which the trust was not exempt from tax by virtue of paragraph (4)(c)". Where an amount was included in the income of the trust for a year and the trust was not exempt from tax pursuant to paragraph 146(4)(c), such amount would have been taxed in the trust, and without this exemption would be taxed again in the hands of the beneficiary in the year of receipt. However, in the present case, the amount in question is "not" income of the trust, since it is specifically "deducted in computing the income of ...(the) trust" pursuant to paragraph 104(6)(b). The same amount cannot be deducted from the income of the trust for the purposes of paragraph 104(6)(b) but considered to be included in the income of the trust for the purposes of the definition in paragraph 146(1)(c).

This is consistent with our position in IT-500, paragraph 24. It states that the income of the trust, including the taxable portion of the capital gains, is subject to tax in the trust and is excluded from the definition of benefit pursuant to 146(1)(b)(iii), as it was previously referred to. Also, IT-500 states that "The amount representing the non-taxable half of capital gains ... accrued in the trust after...(the end of the exempt period)... is not excluded from the definition of benefit by virtue of subparagraphs 146(1)(b)(iii) and consequently is included in ... the amount of the subsection 146(8) benefit." This is the same as the position we are stating now; if it is included in the income of the trust it is exempted from the definition of benefit, but if it is not included in the income of the trust it is included in the definition of benefit.

Assessment of the RRSP Trust

It is our understanding based on Information Circular 78-14R2 that a trustee for a group of RRSP trusts can file a T3R-G return for the group of RRSP trusts, and need not file an individual T3R-IND return for each one. The T3R-G return is an information return and the Department does not issue an assessment or a notice that no tax is payable. Pursuant to paragraph 8 of Information Circular 78-14R2, a T3R-IND is to be filed for the years after the death of the annuitant, however, where the trustee is not informed of the death, it is likely that the trustee would continue to file the T3R-G on behalf of the RRSP trust.

Where the wording of the RRSP trust or the relevant provincial law is such that the income of the trust is not deductible pursuant to paragraph 104(6)(b), our aforementioned position of including amounts earned in the trust in the definition of benefit would not apply. The definition of benefit in subsection 146(1) excludes the amount in respect of the income of the trust for years for which the trust was not exempt pursuant to paragraph 146(4)(c). If these amounts were not deductible pursuant to paragraph 104(6)(b) they would be included in the trust's income, and the fact that the trust did not file a return and report such amounts would not exclude them from its income.

In these situation, we suggest assessing the RRSP trust for all of the relevant years. Since there has been no notice of assessment or notification that no tax is payable sent to the trustee, the years have not become statute barred. Subsection 152(3) states "Liability for the tax under this Part is not affected ... by the fact that no assessment has been made", and subsection 152(7) states, "The Minister ... in making an assessment, may ... if no return has been filed, assess the tax payable under this Part." Although the Department may have an administrative position of not assessing a year after a certain time, the years do not become statute barred without an assessment or notification that no tax is payable. If the trust is not assessed on these amounts we do not see how they can be taxed in the income of the recipient given the definition of benefit.

Summary

Where a deceased annuitant should have, but did not, include the fair market value of the RRSP in his final return, such amount should be included in the recipient's income as a benefit when it is eventually paid from the RRSP. An RRSP trust continues as such after the death of the annuitant. It would be a question of fact based on the wording of the trust and the relevant legislation applicable to the property of deceased individuals whether the otherwise income of an RRSP trust is deductible pursuant to paragraph 104(6)(b). If it is deductible, it should form part of the benefits paid from the RRSP when it is paid out to the beneficiary. If it is not deductible, it should not be included in the benefits but the RRSP trust should be assessed under Part I for the relevant years.

for Director
Financial Industries Division
Rulings Directorate

Enclosures