30 April 2002 External T.I. 2002-0133115 - cpp disability payments after death

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.

Principal Issues:

1. Is receipt of CPP disability benefits after date of death a right or thing

2. If yes to 1. above is 56(8) applicable?

Position:

1.question of fact
2. no

Reasons:

1. question of fact-depends on whether entitlement was established prior to death

2. 56(8) is not applicable as amounts must have been received by the taxpayer for 56(8) to apply and by definition a "right or thing" has not been received.

XXXXXXXXXX Lena Holloway, CA
613-957-2104
2002-013311
April 30, 2002

Dear Sir:

Re: Canada Pension Plan Disability Benefit - Technical Interpretation Request

This is in reply to your letter dated April 4, 2002, regarding the tax treatment of an amount received as Canada Pension Plan ("CPP") disability payment by the estate of a deceased taxpayer (the "Taxpayer"). Your letter requested a technical interpretation on the application of subsections 70(2) and 56(8) of the Income Tax Act (Canada) (the "Act") and outlined the following scenario to illustrate your concerns. All section references hereunder are to the Act unless otherwise indicated.

Scenario

1. Taxpayer was diagnosed with Parkinson's Disease in XXXXXXXXXX.

2. Taxpayer applied for disability pension under the CPP in XXXXXXXXXX.

3. Taxpayer was notified by CPP Administration in XXXXXXXXXX of his ineligibility for disability pension benefits.

4. Taxpayer filed an application of appeal of the decision to the CPP Review Tribunal later that year.

5. The application for appeal was accepted on XXXXXXXXXX.

6. Taxpayer died on XXXXXXXXXX.

7. The executor of the Taxpayer's estate ("the Estate") attended the hearing on behalf of the Estate in XXXXXXXXXX.

8. The executor of the Estate was informed on XXXXXXXXXX that CPP Administration had reversed its decision and that retroactive disability benefits would be paid to the Estate with an effective date of XXXXXXXXXX.

9. The executor of the Estate abandoned the appeal.

10. A retroactive payment was made to the Estate in calendar year XXXXXXXXXX in the amount of $XXXXXXXXXX.

Based on the above scenario you had asked if the retroactive CPP disability benefit payment would constitute a reportable amount by the Taxpayer for the year of death pursuant to subsection 70(2) of the Act on the basis that the Taxpayer was entitled to the benefit payments at the time of his demise. If our answer to the former question is yes, you also asked whether the Taxpayer might avail himself of the election under subsection 56(8) in respect of the amount received after death.

Our Comments

Written confirmation of the tax implications arising from particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request pursuant to Information Circular 70-6R4. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. However, we are prepared to provide you with some general comments, which may be of assistance.

Under subsection 70(2), where a taxpayer had at the date of death, rights or things which had they been realized would have had to be included in income, the value of the right or thing is to be included in the taxpayer's income for the year in which he or she died (unless an election to file a separate return is undertaken as discussed below). Chart 1 of the appendix to the T1 guide entitled Preparing Returns for Deceased persons details the returns to be filed for the year of death. Column 2 of that chart states that a return for right or things must filed under subsection 70(2) in respect of CPP and EI arrears. Where an individual dies after an amount in respect of a CPP disability benefit becomes payable, such an amount may be included in the deceased person's income pursuant to subsection 70(2). Subsection 70(2) allows the legal representative of a deceased taxpayer to elect to file a separate return in respect of rights or things of the deceased. Subsection 70(2) requires that the separate return of income be filed as if:

"(a) the taxpayer were another person;

(b) that other person's only income for the year were the value of the rights or things; and

(c) subject to sections 114.2 and 118.93, that other person were entitled to the deductions to which the taxpayer was entitled under sections 110, 118 to 118.7 and 118.9 for the year in computing the taxpayer's taxable income or tax payable under this Part, as the case may be, for the year."

Where, on the other hand, an individual dies prior to obtaining a determinable right to CPP arrears, any amount subsequently received by the estate (except as a death benefit as excluded by clause 56(1)(a)(i)(F) and referred to in paragraph 56(1)(a.1)) would have to be included in the estate's income by virtue of clause 56(1)(a)(i)(B). In such a case (which is similar to the scenario presented in your letter) as the taxpayer's entitlement is established after death, there is no right to payment at the date of death and therefore subsection 70(2) would not be applicable.

Lastly, subsection 56(8) permits a taxpayer to elect to exclude from income in the year of receipt, CPP benefits that relate to prior years (except where the prior year benefits are less than $300) and to pay tax on those benefits as if they had been received in the prior years to which they relate. Section 120.3 provides the calculation of the tax payable in respect of these amounts. The individual calculates the additional tax, if any, that would have been payable in the previous years had the benefits been included in income in those years and adds this additional amount to the individual's tax otherwise payable in the year of receipt. Note that the wording of subsection 56(8) refers to amounts "received" by an individual. Where an amount is a right or thing with respect to the deceased, by definition (see subsection 70(2)), it cannot have been realized by the deceased prior to the date of death. Hence subsection 56(8) could not apply to an amount that is a right or thing of a deceased since the individual had not received such amounts. Also note that subsection 56(8) is not applicable to a trust, which by definition of "trust" and "testamentary trust" in subsection 108(1) includes an estate of a deceased taxpayer. Therefore, in the scenario described in your letter, while the estate would have an income inclusion under paragraph 56(1)(a), the subsection 56(8) exclusion would not be available.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, the above comments do not constitute an income tax ruling and accordingly are not binding on the CCRA.

We trust the above comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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