24 May 2000 External T.I. 2000-0022495 - RPP DEATH BENEFIT

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 a member of an RPP names a non-resident beneficiary, will the payment of any benefit as a result of the death of the RPP member be subjected to taxes under Part XIII of the Act?

Position: Yes.

Reasons: Under paragraph 212(1)(h) of the Act, any payment out of an RPP to a non-resident will be subject to tax under Part XIII of the Act.

XXXXXXXXXX 								2000-002249
M.P. Sarazin
Attention: XXXXXXXXXX 

May 24, 2000

Dear Sirs:

Re: Beneficiary Designation and Death Benefits from Registered Pension Plans

This is in response to your letter dated February 11, 2000, which was sent to the Winnipeg Tax Services Office and forwarded to us, wherein you asked for clarification regarding the taxation of death benefits paid by a registered pension plan (RPP) to a beneficiary designated by a member of the RPP. The particular beneficiary may be one of the following: a Canadian registered charity, a non-resident individual or a non-resident entity which is tax-exempt under the income tax statute of its country of residence.

Comments

Confirmation of the tax consequences associated with completed transactions are provided by the relevant tax services office. Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R3 dated December 30, 1996, issued by the Canada Customs and Revenue Agency (the "Agency"). Copies of Information Circulars and Interpretation Bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.

A death benefit is included in the recipient's income under subparagraph 56(1)(a)(iii) of the Income Tax Act (the "Act"). The Agency has expressed its general views with respect to death benefits in Interpretation Bulletin IT-508R titled "Death Benefits". You will note that paragraphs 4 and 8 of IT-508R state that amounts paid out of a superannuation or pension fund on the death of a member will not qualify as a death benefit.

The Agency's general views with respect to the taxation of amounts paid out of superannuation and pension funds are found in Interpretation Bulletin IT-499R titled "Superannuation or pension benefits". Paragraph 1 of IT-499R states that a superannuation or pension benefit is defined to include any amount received out of or under a superannuation or pension fund or plan and the amount s are included in the recipient's income under subparagraph 56(1)(a)(i) of the Act. As noted in paragraph 4 of IT-499R, an amount received out of a superannuation or pension fund, other than a type of payment described in paragraph 3 of IT-499R, is income to be included in the recipient's income under subparagraph 56(1)(a)(i) of the Act whether it is in the nature of a single payment or otherwise. This is also confirmed in paragraph 15 of IT-212R3 titled "Income of deceased persons - Rights or things".

Where the recipient of a single lump-sum payment out of a superannuation or pension fund is a non-resident of Canada, the payment would be subject to a 25% tax under Part XIII of the Act pursuant to paragraph 212(1)(h) of the Act. This would be the case whether the lump-sum payment is made to a non-resident individual or to a non-resident tax-exempt entity. Generally, lump-sum superannuation or pension payments to non-residents are not eligible for any reduced withholding tax rate pursuant to the various income tax conventions negotiated between Canada and other countries. Reference should be made to the specific convention with respect to any specific situations you may be contemplating.

Where the named beneficiary under the RPP is a registered charity, a foreign organization described in any of paragraphs 118.1(1)(e), (f) or (g) of the definition "total charitable gifts", or (with respect to an RPP member who is an individual described in subsection 118.1(9) of the Act) an organization described in subsection 118.1(9) of the Act, the deceased member of the RPP would not be entitled to any tax credits in respect of the amounts paid by the RPP to the recipient.

We trust the above comments will be helpful.

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate