13 December 2010 External T.I. 2010-0352911E5 - Beneficiary's Liability for Tax from RRSP Proceeds

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.

Principal Issues: Whether a beneficiary is liable for tax arising from the proceeds from an RRSP belonging to a deceased annuitant.

Position: Yes.

Reasons: Subsection 146(8.8) provides that funds from the RRSP are deemed to be a benefit to the annuitant immediately before his death. Accordingly, the estate is liable to pay the tax. Subsection 160.2(1) provides that the beneficiary is jointly and severally with the estate to pay the portion of the annuitant's tax that is attributable to the benefit.

XXXXXXXXXX
									2010-035291
									Lindsay Frank
									(613) 948-2227
December 13, 2010

Dear XXXXXXXXXX :

Re: Liability of a Beneficiary for RRSP Proceeds on the Annuitant's Death

This is in reply to your letter of December 18, 2009, in which you requested a technical interpretation regarding the liability of a beneficiary who, on the death of the annuitant, received the proceeds from the realisation of an RRSP owned by the annuitant.

The annuitant died on XXXXXXXXXX , 2009. His mother is the executor and sole beneficiary of his estate. Prior to his death, he owned two RRSPs. He liquidated one in XXXXXXXXXX 2009. The proceeds from the other RRSP, purchased from an insurance company, were paid directly to his mother, presumably because she was the named beneficiary under the plan. As a result, the estate is without sufficient funds to pay the tax arising from the liquidation of the RRSPs.

Under subsection 146(8.8) of the Income Tax Act (the "Act"), the funds arising from the RRSP are deemed to be a benefit to the annuitant immediately before his death; accordingly, the estate is liable for the tax, see Slater v. Klassen Estate [2000] 2 C.T.C. 100 (Man. Q.B.). If the estate does not have the capacity to pay the tax on the realised RRSP, subsection 160.2(1) of the Act applies.

Subsection 160.2(1) provides that the recipient of a benefit out of an annuitant's RRSP is jointly and severally liable to pay that portion of the annuitant's tax that is attributable to the benefit. Accordingly, the annuitant's mother is liable to pay income tax on the proceeds of the RRSP that she received.

Please note that Information Sheet RC 4177, Death of an Annuitant, contains, among others, general information about the taxation of amounts held in an RRSP at the time that the annuitant died, and the taxation of amounts paid out of an RRSP because the annuitant died. You would find this document under Forms and Publications on the Canada Revenue Agency's website at www.cra.gc.ca.

Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
International & Trusts Division
Income Tax Rulings Directorate