Teitelbaum – Cour du Québec finds that that a deceased’s RCA was a right or thing that, due to its tardy distribution, was received free of tax by an estate beneficiary

ITA s. 70(3) provides that a right or thing is taxable to an estate beneficiary if it is distributed to the beneficiary before the time for making a right or thing election under s. 70(2) has passed. In the will of the deceased common law partner (Lewin) of a Quebec taxpayer (Teitelbaum), Lewin designated Teitelbaum as a beneficiary of “all pension plans and any annuities purchased therefrom.”

Both Teitelbaum and the ARQ considered that Lewin’s right to $1.4 million under a retirement compensation arrangement was a right or thing at his death. However, the ARQ considered that this amount had become property of Teitelbaum, and thus had been distributed to Teitelbaum, directly on Lewin’s death by virtue of the quoted designation in Lewin’s will.

Teitelbaum relied on the fact that the $1.4 million, in fact, had not been distributed to her until about two years’ after Lewin’s death (due to a debate between the executors and the RCA trustees as to whether Teitelbaum was an “eligible spouse” under the terms of the RCA), so that the Quebec equivalent of s. 70(3) did not apply to include the amount in her income.

Fournier JCQ agreed with Teitelbaum. Although there were provisions in the Civil Code providing for a beneficiary to become designated directly as an annuitant of a retirement plan (or insurance policy) rather than receiving such property as a distribution to her by the executors, here no annuity had yet been purchased out of the $1.4 million, so that Teitelbaum received her $1.4 million as a legacy out of the estate.

Neal Armstrong. Summary of Teitelbaum v. Agence du revenu du Québec, 2017 QCCQ 8039 under s. 70(3).