2 November 2000 External T.I. 2000-0049505 - RRIF TRANSFER TO DEPENDENT CHILD

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:

Can an amount be transferred out of a RRIF on a tax-deferred basis to an adult child of the annuitant of the RRIF on the death of the annuitant?

Position:

The amount may be transferred on a tax-deferred basis to an RRSP, a RRIF or an annuity under which the child is the annuitant, if the amount is a "refund of premiums" as that term is defined in the Act.

Reasons:

The Act provides for tax-deferred transfers of amounts between registered plans for the benefit of dependent children in certain circumstances.

XXXXXXXXXX        2000-004950
W. C. Harding
November 2, 2000

Dear XXXXXXXXXX:

Re: Transfer of amounts from a Registered Retirement Income Fund (RRIF)

This is in reply to your letter of August 27, 2000, in which you ask for a ruling on whether you can have your RRIF transferred to your son on your death as well as clarification of the procedures to make such a transfer.

Because your request deals with a specific situation that may not occur for some time we cannot provide any "rulings" at this time. However, we can provide the following general comments which you may find of assistance. Please note that these comments are of a general nature and are not binding on the Canada Customs and Revenue Agency (the "Agency").

The Agency has published an Information Sheet, RC4178 entitled "Death of a RRIF Annuitant", which provides general information about the taxation of amounts held in a RRIF at the time of the death of the last annuitant under a RRIF and the taxation of any amounts paid out of a RRIF because of the annuitant's death. A copy of this information sheet has been enclosed for your use and we have highlighted several of the sections that should be of greatest interest to you.

As a general rule the last annuitant under a RRIF is considered to receive a benefit immediately before death equal to the fair market value of the property held in the RRIF at that time. However, subject to our comments below, the annuitant can generally designate a child as the beneficiary of the RRIF in which case the amount that must be included in the income of the deceased may be reduced and included in the income of the beneficiary. The child may then be able to transfer all or a portion of the amount to an RRSP, RRIF or an annuity under which the child is the annuitant. Chart 2 of the Information Sheet gives a detailed explanation of how to calculate a reduction of the deceased annuitant's income.

The amount that can normally be transferred by the child to the child's RRSP, RRIF or annuity can be determined under Chart 3 of the Information Sheet. However before a child can transfer an amount as described above, it must be established that the child was financially dependent on the annuitant for support. at the time of the annuitant's death. Because this is a question of fact, the Agency believes it is more appropriate for the issue to be decided at your local tax services office where they are better able to consider the factors that are relevant to each particular situation. The factors they may consider might include:

a) the income of the child from all sources;

b) the cost of living and the ability of the child to provide for self-support; and

c) the support provided to the child from other sources.

Unless the contrary is established, it will be assumed that a child was not financially dependent upon the deceased for support at the time of death if the child's net income for income tax purposes in the year preceding the death of the deceased, was greater than the amount used in calculating the basic personal credit in subsection 118(1) of the Act (set at $7,044 for deaths occurring in 2000). However, please note that if a child earns less than this amount, it does not automatically mean that the child is financially dependent on the deceased at the time of death. Financial dependency on the deceased, regardless of the amount of income, is a separate test.

In your letter you also ask about the effect a transfer of your RRIF to your son might have on the amount of assistance your son now receives from other sources and the effect it may have on the amount of CPP benefits or old age security he might receive later in his life. These questions cannot be answered by the Agency. However the municipal office providing your son with his assistance may be able to provide answers to you with respect to that assistance while Human Resources Development Canada should be of assistance in answering questions on the Canada Pension Plan and the Old Age Security program. Local telephone numbers for these agencies are listed in the blue pages of your phone book.

We trust this explanation will be of assistance to you. However, if you still have any questions after you have reviewed the information sheet, please write us or call our general enquiry line at (613) 957-8953 and we would be happy to provide further assistance.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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