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 the tax liability for the amounts held in a RRIF at the time of the last annuitant's death be transferred to the RRIF beneficiary?
Position: No.
Reasons: The fair market value of the RRIF property has to be included in the deceased annuitant's final return. Other than a designated benefit, there is no provision allowing the transfer of income recognition.
XXXXXXXXXX 2001-008567
G. Allen
July 18, 2001
Dear XXXXXXXXXX,
Re: Registered Retirement Income Funds ("RRIF") and Taxation at Death
This letter is in reply to your letter dated May 22, 2001 concerning the above-referenced topic. Please be advised that we are not in a position to provide financial or estate planning advice, however, we can provide the following general comments, which may be of assistance.
The Canada Customs and Revenue Agency's (CCRA) general views regarding the taxation of amounts held in a deceased annuitant's RRIF can be found in the guide titled, "RRSPs and Other Registered Plans (T4040)". The enclosed Chart 3, which appears on page 20 of the guide deals specifically with amounts from a deceased annuitant's RRIF. We have also enclosed a section from Chapter 4 of the guide titled, "2000 T4RSP and T4RIF Guide (T4079)" concerning RRIF payments to a beneficiary. Guide T4079 is intended to provide information to financial institutions concerning the payment of amounts from RRSPs and RRIFs. You can obtain copies of guides from your local tax office or you can access guides on the internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html.
A beneficiary of a RRIF may be designated in the RRIF contract or in the deceased annuitant's will. Where a beneficiary, including the estate, is named in the RRIF contract, amounts paid from the RRIF after the death of the last annuitant are to be paid out to that person. If there is no beneficiary named in the RRIF contract, amounts will be paid to the estate of the deceased. Where a beneficiary is designated in the will, amounts will generally be paid to the estate and distributed by the legal representative of the deceased annuitant to the beneficiary (ies) designated in the will.
Where the last annuitant under a RRIF has died, he or she is deemed by subsection 146.3(6) of the Income Tax Act (the "Act") to have received immediately before his or her death, a benefit equal to the fair market value of the property held in the RRIF at that time. Although there is no payment actually made by the carrier out of the RRIF to the annuitant at that time, the value of the property in the RRIF at the time of death is included in the deceased annuitant's income for the year of death. There is no provision in the Act that allows the annuitant to transfer the income recognition of the fair market value of the RRIF property at the time of death to a RRIF beneficiary that is the annuitant's sister.
Where an amount held in the deceased annuitant's RRIF is subsequently paid from the RRIF, the portion of the amount that was included in computing the income of the deceased annuitant or any other person is excluded from the amount the recipient is required to include in income pursuant to paragraph 146.3(5)(a) of the Act.
The deceased annuitant's estate is responsible for the income taxes owing in respect of the deceased annuitant's final income tax return, which will include the fair market value of the RRIF as required under subsection 146.3(6) of the Act. Where the estate has insufficient property to pay the taxes owing, the provisions of subsection 160.2(2) of the Act provide that the recipient of the RRIF property can be liable for the taxes of the deceased annuitant relating to the deemed RRIF benefit which is included in the deceased annuitant's income under subsection 146.3(6) of the Act. We note that the recipient can only be liable for the deceased annuitant's taxes that relate to the amount received by the recipient and not for the taxes that relate to amounts received by other beneficiaries out of the RRIF. This joint liability provision is required because the deceased annuitant is taxed on amounts that are not received and, as such, the deceased annuitant's estate may not have the funds to pay the taxes owing on such deemed receipts, whereas the recipients of the property from the RRIF are not taxed on such amounts. Since the taxes relate to the tax-free property received out of the deceased annuitant's RRIF, the Act makes the recipient of the tax-free property jointly liable for the deceased annuitant's taxes that relate to such tax-free property.
We note that, where a RRIF annuitant names his or her estate as the beneficiary under the RRIF contract, the estate would have the funds required to pay the deceased annuitant's income taxes on the RRIF property and the after-tax amounts paid by the estate to its beneficiaries would not be subjected to subsection 160.2(2) of the Act. However, the RRIF property received by the estate would become available to pay any other estate debts thereby potentially reducing the RRIF amount available for distribution to the estate's beneficiaries.
We trust the above comments will be of assistance.
Mickey Sarazin, CA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Enclosure
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