20 July 2001 External T.I. 2001-0086625 - ANNUITY PURCHASED WITH PENSION 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: If a minor grandchild receives a pension benefit as a result of the death of his grandparent, can the amount be transferred to an annuity for the grandchild?

Position: Yes

Reasons: Paragraph 60(l) provides for a deduction to the grandchild where a certain type of annuity is purchased by him or on his behalf.

XXXXXXXXXX 			2001-008662
S. E. Thomson
July 20, 2001

Dear XXXXXXXXXX:

Re: Pension benefits received by grandchildren

We are writing in response to your email to Kevin Stackhouse on May 29, 2001 regarding pension benefits received by your children.

Your children were the named beneficiaries of your father's registered pension plan, and upon his death, each received a lump sum amount from the plan in 1998. A T4A was received by each of the children, and the amounts were reported as pension income on their personal tax returns for 1998. You ask if the amounts could have been eligible for a deferral under paragraph 60(l) of the Income Tax Act (the "Act").

The determination of whether an amount is eligible for a deduction under paragraph 60(l) of the Act is a question of fact. Since your question involves specific taxpayers and completed transactions, we are precluded from commenting directly on your situation. However, we are able to provide the following comments regarding the general application of paragraph 60(l) of the Act.

A lump sum payment received from a registered pension plan is taxable to the recipient taxpayer in the year of receipt by virtue of subparagraph 56(1)(a)(i) of the Act. Where an annuity that qualifies under paragraph 60(l) of the Act is acquired, the taxpayer is entitled to a deduction from income equal to the amount paid to acquire the annuity, to the extent that it does not exceed the amount included in income. Effectively, paragraph 60(l) of the Act provides the taxpayer with the opportunity to have the lump sum registered pension plan receipt taxed over the term of the annuity, rather than all in the year of receipt.

In order to qualify under paragraph 60(l) of the Act, the lump sum payment from a registered pension plan must have been received as a consequence of the death of the taxpayer's parent or grandparent, and cannot be one of a series of periodic payments, or a that relates to actuarial surplus. In addition, the amount paid to acquire the annuity must be paid in the year that the registered pension plan payment is received, within 60 days after the end of the year, or within such longer period after the end of the year as is acceptable to the Minister. The annuity must be payable to the child or grandchild, or a trust for the benefit of the child or grandchild, over a term not exceeding 18 minus the age in whole years of the child or grandchild at the time the annuity is acquired.

We note that, once the child or grandchild reaches the age of 18, he or she can no longer benefit from the application of paragraph 60(l) of the Act. In addition, there is no provision within the Act that will allow a taxpayer to retroactively qualify for the deduction under paragraph 60(l) of the Act.

We trust that our comments have been helpful.

Yours truly,

Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate

cc: Kevin Stackhouse, IRPPD