7 April 2003 External T.I. 2003-0182965 - RRIF MINIMUM AMOUNT MARRIAGE BREAKDOWN

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:

Can a RRIF make a payment to the annuitant's former spouse as a result of marriage breakdown (under paragraph 146.3(14)(b)) resulting in the RRIF holding property with FMV of less than the minimum amount?

Position: Yes

Reasons:

Paragraphs 146.3(2)(e.1) and (e.2) do not apply. The carrier must pay out the lesser of the minimum amount or the FMV of property remaining in the RRIF after the transfer.

2003-018296
XXXXXXXXXX Renée Shields
(613) 948-5273
April 7, 2003

Dear XXXXXXXXXX:

Re: Minimum amount payable from a registered retirement income fund (RRIF)

This is in response to your letter of January 6, 2003 inquiring whether there is a requirement to pay any outstanding minimum amount at the time of a transfer from an individual's RRIF to the RRIF of another individual pursuant to marriage breakdown. During our telephone conversation on April 3, 2003 (Shields/XXXXXXXXXX) you also asked how a carrier should administer the payment of a minimum amount when a court order reduces the assets in the RRIF to less than the minimum amount.

Written confirmation of the tax implications inherent in 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 submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

The CCRA's general views regarding the transfer of amounts from a RRIF to another RRIF are contained in Interpretation Bulletin IT-528, "Transfers of Funds Between Registered Plans".

A "retirement income fund" is defined in subsection 146.3(1) of the Income Tax Act (the "Act") to mean an arrangement under which the carrier undertakes to pay to the annuitant and, where the annuitant elects, to the annuitant's spouse after the annuitant's death, amounts each year which total not less than the lesser of the minimum amount and the fair market value of all the property in the RRIF. The "minimum amount" in respect to a RRIF is defined in subsection 146.3(1) of the Act. Basically, it is an amount equal to the fair market value of the RRIF at the beginning of a year multiplied by a factor determined on the basis of the age of the annuitant at the start of the year or, if the annuitant is deceased, the age the annuitant would have been at the beginning of the year if the annuitant were alive.

Paragraphs 146.3(2)(e.1) and 146.3(2)(e.2) of the Act require that where an annuitant directs the RRIF carrier to transfer all or part of a RRIF's property to another carrier of a RRIF for the annuitant, the transferor carrier must retain property sufficient to pay the minimum amount payable for the year. The reason for such a requirement can be explained as follows. Where RRIF property is transferred from one RRIF carrier to another RRIF carrier during the year, the new RRIF carrier is not required to pay the minimum amount in the year of transfer because it did not hold any property at the beginning of the year. Consequently, without the condition requiring the RRIF carrier to retain the balance of the minimum amount on any transfer of RRIF property to another RRIF carrier, an annuitant would be able to avoid the receipt of the minimum amount each year by transferring the RRIF property to a new RRIF carrier immediately before the old RRIF carrier is required to make the minimum payment under the RRIF arrangement. That is, the original RRIF carrier would not have any property to make the required minimum payment under its RRIF arrangement subsequent to the transfer and the new RRIF carrier is not required to make a minimum payment.

The wording of paragraphs 146.3(2)(e.1) and (e.2) of the Act refer specifically to a transfer to a carrier of another RRIF of the annuitant. It is our position that this wording would therefore not require a RRIF carrier to retain the minimum amount when property is transferred to another annuitant's RRIF on breakdown of a marriage or common-law partnership as permitted by subparagraph 146.3(2)(f)(iv) of the Act. This interpretation is also supported on a policy basis. Where RRIF property is transferred to the RRIF of another individual due to a decree, order or judgment of a competent tribunal, or under a written separation agreement relating to a division of property resulting from the breakdown of a marriage or common-law partnership, the potential for abuse of the minimum amount rule is quite limited.

Your second question asked how the carrier should administer the minimum payment out of the transferor RRIF. The question arises because it is possible that having completed the transfer required due to the breakdown of the marriage or common-law partnership, the RRIF may no longer have sufficient assets to pay the minimum amount. As noted above, subsection 146.3(1) of the Act requires the RRIF carrier to pay the lesser of the minimum amount and the fair market value of all the property in the RRIF. Accordingly, where less than the minimum amount remains in the RRIF after the transfer, the carrier would be required to pay out the fair market value of the RRIF's remaining property.

We trust that these comments will be of assistance.

Yours truly,

Mickey Sarazin, C.A.

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