8 February 2000 External T.I. 1999-0013725 - RRSP LOSSES, DEATH OF 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: Where an RRSP incurs a loss subsequent to the death of its annuitant, can the beneficiaries of the RRSP claim that loss?

Position: No.

Reasons: There is no provision in the Act that allows for the loss to flow through to the RRSP beneficiaries.

XXXXXXXXXX 					1999-001372
M. P. Sarazin
Attention: XXXXXXXXXX 

February 8, 2000

Dear Sirs:

Re: RRSP Losses Subsequent to the Death of the Annuitant

This is in response to your letter dated December 3, 1999, wherein you requested our comments regarding the taxation of amounts held in a registered retirement savings plan ("RRSP") on and after the death of the RRSP annuitant where there is a decrease in the value of the property held in the RRSP subsequent to the annuitant's death.

For example, at the date of death of the annuitant of an unmatured RRSP, the RRSP assets have a fair market value $100,000 and the fair market value of the assets when the property is distributed to the annuitant's spouse in the following calendar year is $90,000. With respect to this example, you would like to know the amount that can be deducted under 146(8.9) of the Income Tax Act (the "Act"), the amount that has to be included in the surviving spouse's income and the adjusted cost base of the RRSP assets transferred to the surviving spouse's RRSP or registered retirement income fund ("RRIF").

Comments

The Canada Customs and Revenue Agency's general views are found in Interpretation Bulletin IT-500R titled "Registered Retirement Savings Plans - Death of an Annuitant".

Where an annuitant under an RRSP dies, paragraph 5 of IT-500R states that subsection 146(8.8) of the Act deems the annuitant to have received, immediately before his or her death, a benefit equal to the fair market value of all property of the RRSP.

Consequently, in the above example, the deceased annuitant would be deemed to have received $100,000 immediately before his or her death and such amount would have to be included in his or her income for the year of death.

You will note that paragraph 17 of IT-500R discusses the definition of "refund of premiums" which is found in subsection 146(1) of the Act. Any amount paid to the deceased annuitant's spouse out of an RRSP before its maturity will qualify as a refund of premiums. As noted in paragraph 9 of IT-500R, the benefit deemed to have been received by the deceased annuitant immediately before his or her death may be reduced under subsection 146(8.9) of the Act in respect of the refund of premiums. In this regard, we would refer you to the formula described in subsection 146(8.9) of the Act which is also described in paragraph 9 of IT-500R. In the above example, the $90,000 paid out of the unmatured RRSP to the deceased annuitant's spouse will qualify as a refund of premiums for purposes of the Act and the amount included in the deceased annuitant's income under subsection 146(8.8) of the Act may be reduced under subsection 146(8.9) of the Act by as much as $90,000. The reduction limit is set by the formula but the amount deducted under 146(8.9) of the Act can be less than the amount computed under the formula.

Where property is transferred from the deceased annuitant's RRSP to the surviving spouse's RRSP or RRIF, the property will be acquired at its fair market value on the date of the transfer. In the above example, the surviving spouse's RRSP or RRIF will acquire the transferred property at its fair market value of $90,000.

Paragraphs 21, 22 and 23 of IT-500R provide the Agency's views regarding the taxation of income earned by the RRSP and how it is taxed either in the hands of the recipient or in the RRSP trust. Where there is a decrease in the value of the RRSP property between the date of the annuitant's death and the date that the RRSP property is distributed to the surviving spouse as a refund of premiums, the decrease represents a loss incurred by the RRSP. There is no provision in the Act that allows the beneficiary to claim the loss incurred by the RRSP. Consequently, the amount included in the deceased annuitant's income on death may be greater than the total value of the property eventually distributed to the beneficiaries of the RRSP.

We trust the above comments will be of assistance to you.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate