CRA states that deemed payment on death of the last RRIF annuitant is not pension income
Under s. 146.3(6), the last annuitant under a RRIF is deemed, upon death, to have received, immediately before death, an amount out of or under a RRIF equal to the FMV of the property of the fund at the time of the death. The definition of “pension income” in s. 118(7) – (a)(iii) refers inter alia to “a payment out of or under a registered retirement income fund.”
This wording might seem to be a perfect fit, so that a payment deemed by s. 146.3(6) to be paid out of a RRIF might thereby be thought to qualify as pension income. Not so in the view of CRA, who stated:
For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.
… [A]n amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.
Neal Armstrong. Summary of 11 October 2019 APFF Financial Strategies and Instruments Roundtable, Q. 9 under s. 118(7) – pension income – (a)(iii).