17 February 2004 External T.I. 2004-0055431E5 - Designated Benefit from a RRIF

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.

Principal Issues: What are the income tax consequences of a transfer of funds from a RRIF to a surviving spouse after the death of an annuitant where the surviving spouse is named as the sole beneficiary of the RRIF in the will?

Position: Possible transfer of designated benefit, if joint election is filed with the legal representative of the estate and possible paragraph 60(l) deduction for the surviving spouse

Reasons: The tax consequences are clear from the legislation in this case

2004-005543
XXXXXXXXXX Kimberly Duval
(613) 957-8982
February 17, 2004

Dear XXXXXXXXXX:

Re: Designated Benefit from a Registered Retirement Income Fund ("RRIF")

This is in response to your letter of January 8, 2004 wherein you requested our opinion with respect to the income tax consequences on the transfer of funds from a RRIF to a surviving spouse after the death of an annuitant.

Our Comments

The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. As explained in Information Circular 70-6R5, Advanced Income Tax Rulings, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an Advanced Income Tax Ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments that may be of assistance. All publications referred to herein can be accessed on the CRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

The CRA's general views regarding the treatment of RRIF amounts following the death of the annuitant are contained in Information Sheet RC4178 entitled "Death of a RRIF Annuitant" and also in the T4RSP and T4RIF Guide (form T4079).

In general, a RRIF is an arrangement between a carrier and an individual (namely the annuitant) under which, in consideration of property, the carrier undertakes to pay the yearly minimum amount to the annuitant. Where the arrangement between the carrier and the annuitant provides for its continuance with the annuitant's spouse or common-law partner named as the "successor annuitant", the RRIF carrier will continue to make payments to the annuitant's spouse or common-law partner after the death of the annuitant. Where the arrangement does not provide for a successor annuitant, payments may continue to be made by the carrier to a successor annuitant at the consent of the deceased annuitant's legal representative and the RRIF carrier. The definitions of "RRIF" and "annuitant" in the Income Tax Act (the "Act") do not make it possible for any person other than the spouse or common-law partner of the first annuitant to be the successor annuitant. This structure allows the RRIF to remain registered and allows earnings on the RRIF investments to continue to be tax sheltered after the death of the first annuitant.

Upon the death of the last annuitant of the RRIF, subsection 146.3(6) of the Act deems the annuitant to have received, immediately before death, an amount out of the RRIF equal to the fair market value of the property at the time of death. This amount, and any other amounts received by the annuitant in the year from the RRIF, must be included in the deceased annuitant's income for the year of death. However, subsection 146.3(6.2) of the Act may reduce this income inclusion by permitting a deduction from the deceased annuitant's income for the year of death for an amount paid directly from the RRIF to a qualifying beneficiary as a designated benefit. Please refer to the shaded areas of Chart 1 of the Information Sheet for a description of the amounts that may qualify as a designated benefit.

An amount that qualifies as a designated benefit is taxable to the recipient in accordance with subsection 146.3(6.1), and, where the beneficiary is the spouse, common law partner of the annuitant or a child or grandchild dependent on the annuitant by reason of mental or physical infirmity, such individual may claim a deduction under paragraph 60(l) of the Act for the amount of a designated benefit that is brought into their income. This deduction is only available if, in the year of receipt of the designated benefit, or within 60 days after the end of the year, it is transferred to an RRSP, a RRIF, or an annuity as described in subparagraph 60(l)(ii) of the Act, under which the spouse, common law partner or child/grandchild is the annuitant. Please refer to the "Qualified Beneficiaries - Transfers" section of the Information Sheet.

In a situation where a RRIF annuitant has died and named his or her surviving spouse as the sole beneficiary of the RRIF in their Last Will and Testament and not in the RRIF contract itself; the surviving spouse will still be eligible for the transfer provisions as discussed above. The surviving spouse, as a qualifying beneficiary, and the legal representative of the estate must jointly elect in prescribed form, to treat part or all of the amount paid to the qualified beneficiary as a designated benefit. This designation then permits the amount to be deducted from the deceased annuitant's income, included in the surviving spouse's income and, if transferred to a registered vehicle as described above and in accordance with paragraph 60(l) of the Act, the spouse would be eligible for the off-setting deduction.

As explained in Chart 2 of the Information Sheet, when claiming a reduction of the deceased's income in the year the annuitant died, the legal representative should attach a letter to the annuitant's return explaining how the amount included in income was calculated. To the extent the adjustment is requested in the year following death, the legal representative must write a letter requesting the adjustment to the annuitant's tax return for the year of death.

We trust that these comments will be of assistance.

Yours truly,

Roxane Brazeau-LeBlond, C.A.

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