13 September 2002 Internal T.I. 2002-0124467 - RRSP AMOUNTS PAYABLE AFTER ANNUITANT DIES

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

MAIL TYPE: CCRA Documents; (Forms & Guides, Internal Queries, Appeals Referrals)

Principal Issues: Can the estate claim a subsection 146(8.9) deduction on the final 146(1) return in respect of RRSP amounts still unclaimed by the beneficiary?

Position: No.

Reasons: Not a refund of premiums.

		September 12, 2002

St. John's Tax Centre	HEADQUARTERS	Bernadette McLean	Phillip Kohnen, CMA		T1 Client Services	(613) 957-2093

		2002-012446

RRSP Refund of Premiums

This is in reply to your facsimile submission of February 20, 2002, in which you requested our views regarding the appropriate tax treatment of an amount payable to the beneficiary of a deceased annuitant's registered retirement savings plan ("RRSP") and our subsequent telephone conversations (McLean/Kohnen).

Your submission provided general details concerning the facts and transactions that apply to your request. We have summarized the most significant facts in your submission as follows:

1. The RRSP annuitant died during the 2000 calendar year, and had no spouse at the time of his death.

2. His RRSP had not yet matured.

3. An amount of $XXXXXXXXXX was included in the income of the deceased annuitant for the 2000 calendar year, pursuant to subsection 146(8.8) of the Income Tax Act (the "Act").

4. His daughter, whose date of birth is XXXXXXXXXX, may have been the named beneficiary of the RRSP. The submission provides conflicting information in this regard.

5. The last will and testament of the deceased annuitant names her as beneficiary, instructing the executor of the estate to pay or transfer the RRSP funds to her.

6. To date, the RRSP funds remain with XXXXXXXXXX, which is awaiting direction from the beneficiary.

7. The executor of the estate has requested that the final return for the deceased taxpayer be reassessed to allow a deduction pursuant to subsection 146(8.9) of the Act in respect of the beneficiary's entitlement to the RRSP amounts.

Our Comments:

Subsection 146(8.9) of the Act provides for a deduction from the RRSP amount included in income pursuant to subsection 146(8.8) of the Act. The deduction is only applicable in respect of: (a) a refund of premiums in respect of the plan, (b) a tax-paid amount paid to an individual who received a refund of premiums in respect of the plan (other than a deemed refund of premiums), or (c) a tax-paid amount paid to the legal representative of the plan annuitant that could have been designated under subsection 146(8.1) of the Act if tax-paid amounts were not excluded in determining refunds of premiums.

Given that an election under subsection 146(8.1) of the Act requires the agreement of the beneficiary, which we understand is not possible in this case, a deduction pursuant to subsection 146(8.9) of the Act will only be available if the beneficiary receives a refund of premiums in respect of the plan.

The definition of a refund of premiums, in subsection 146(1) of the Act, includes an amount (other than a tax-paid amount) paid out of or under the RRSP after the death of the annuitant to a child or grandchild of the annuitant who was financially dependent on the annuitant for support at the time of the annuitant's death.

As was noted above, the RRSP amounts remain with XXXXXXXXXX. No amount has yet been paid to the beneficiary. There can be no refund of premiums until such time as an amount is actually paid out of or under the RRSP to the beneficiary.

We would not agree with the executor's argument that the beneficiary has constructively received a refund of premiums as she has effective control over the amount. When the annuitant under an RRSP dies, subsection 146(8.8) of the Act deems the annuitant to have received, immediately before death, a benefit equal to the fair market value of the property held in the RRSP at that time. The amount included in the deceased annuitant's income as a result of his or her death, pursuant to subsection 146(8.8), may be reduced by the amount of a "refund of premiums" paid to the deceased annuitant's spouse or common-law partner, or a financially dependent child or grandchild. The application of the doctrine of constructive receipt would generally render the tax provisions in respect of the death of an RRSP annuitant in subsection 146(8.8) redundant.

We would also point out that, although it is a secondary issue given that no amount has been received by the beneficiary, it would appear that the beneficiary may not have been financially dependent on the annuitant for support at the time of death, as is required by the wording of paragraph (b) of the definition of refund of premiums in subsection 146(1) of the Act. You indicated during our conversation that the support payments, which the annuitant had been making to the beneficiary, appear to have ceased in 1999, the year before the death of the annuitant. It is not stated why the payments ceased. The executor has presented an argument based on the fact that the beneficiary had income in the year preceding the death of the annuitant that was below the threshold referred to in the definition of a refund of premium in subsection 146(1) of the Act. This fact, in itself, is not conclusive. It should be noted that the definition of a refund of premiums, referred to above, states that it will generally be assumed that a dependant was not financially dependent on the annuitant at the time of death if the dependant's income for the year preceding the year of death exceeded the basic personal amount in paragraph 118(1)(c) of the Act. The determination of whether the beneficiary was financially dependent on the annuitant, at the time of death, requires a review of all of the facts. Insufficient facts were provided to make such a determination in this case.

It should be noted that an RRSP would normally be included in the estate of the deceased annuitant until such time as amounts are paid out to beneficiaries, either in accordance with a beneficiary designation in the plan itself or in accordance with a direction in the will of the deceased. Subsection 160.2(1) of the Act provides that both the estate and the recipient of amounts paid out of or under an RRSP, may be jointly and severally liable to pay all, or a portion of, the taxes payable because of the inclusion of the value of the RRSP in the deceased annuitant's income in the year of death.

We trust that the above comments will be of assistance to you. Please do not hesitate to contact Phillip Kohnen at (613) 957-2093 should you require further information.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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