Principal Issues: Various questions including whether (1) the Act permits a rollover of RRSP amounts to a trust established for the benefit of a mentally competent surviving spouse or common-law partner; (2) timing restrictions apply with respect to amounts designated under subsection 146(8.1) of the Act; and (3) an election under a RIF agreement or in the deceased annuitant's will which would constitute a valid election as provided under the definition of "retirement income fund" in subsection 146.3(1) of the Act?
Position: (1) No; (2) Election to be made for year in which RRSP proceeds are paid to the legal representative; and (3) the annuitant may elect as part of the RIF agreement or under a provision of the annuitant's will for payments to continue to be made to the annuitant's spouse or common-law partner after the annuitant's death.
Reasons: (1) No; (2) 146(8.1); and (3) 146.3(1) definition of "retirement income fund" and IC78-18R6, paragraph 12.
XXXXXXXXXX 2012-045823
K. Podor
April 18, 2013
Dear XXXXXXXXXX:
Re: Refund of Premiums
This is in response to your correspondence regarding unmatured registered retirement savings plan ("RRSP") and registered retirement income fund ("RRIF") amounts received following the death of an annuitant.
Our Comments
Currently, the Income Tax Act (the "Act") does not provide for a deduction under paragraph 60(l) for the transfer of an amount equal to the refund of premiums from a deceased annuitant's RRSP to a trust for the benefit of a mentally competent spouse or common-law partner; nor are there any proposed amendments in this regard.
You have also asked for confirmation regarding whether timing restrictions apply with respect to amounts designated under subsection 146(8.1) of the Act. As per the Department of Finance explanatory notes (http://www.fin.gc.ca/drleg-apl/ITA05n_4-eng.asp), subsection 146(8.1) of the Act applies to situations where an amount paid from a deceased individual's RRSP to the individual's estate would have been a "refund of premiums" if it had been paid by the RRSP to a beneficiary under the estate. Subsection 146(8.1) allows the legal representative of a deceased RRSP annuitant's estate and a qualifying beneficiary (spouse, common-law partner, financially dependent child or grandchild of the deceased annuitant) under the estate to elect jointly to have the RRSP proceeds that were paid to the estate be treated as a refund of premiums received by the beneficiary from the RRSP. The election is made for the year in which the proceeds were paid to the legal representative. When such an election is made, the beneficiary is required to include the deemed refund of premiums in income. Where all or a part of the refund of premiums is used to acquire a qualifying annuity or paid into an RRSP or RRIF of the beneficiary and certain other conditions are satisfied, the beneficiary will be entitled to an offsetting deduction under paragraph 60(l) of the Act. This deduction is only available in the year of receipt of the refund of premiums, or within 60 days after the end of the year.
The term "retirement income fund" ("RIF") is defined in subsection 146.3(1) of the Act. Under this definition, an annuitant can elect to continue the minimum amount to be paid to a spouse or common-law partner (the "successor annuitant") after the death of the annuitant. You requested confirmation of whether the CRA will accept an election to name the annuitant's spouse or common-law partner as the successor annuitant in the form of a designation in a RIF contract or under a provision contained in the will of the deceased annuitant. An election made by the annuitant in the RIF contract or in the annuitant's will is acceptable to the CRA. Additional information on the reporting requirements following the death of an annuitant are contained in paragraphs 3 and 12 of Information Circular (IC) 78-18R6, "Registered Retirement Income Funds". This document and other CRA publications are available on our website at http://www.cra-arc.gc.ca/menu-e.html under "Forms and Publications".
We trust these comments are helpful.
Lita Krantz, CPA, CA
Assistant Director
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
