20 May 2004 Internal T.I. 2004-0070041I7 - Fraudulent RRSP Withdrawals

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: Are fraudulent withdrawals from an RRSP considered "received" by the annuitant and included in his income?

Position: In this particular case, the annuitant had not "received" the amounts.

Reasons: Interpretation of the word "received" in Field 2001 DTC 236(TCC)

							May 20, 2004

VANCOUVER ISLAND TSO				HEADQUARTERS
Client Services							A. St-Amour, CA
(613) 998-0290

Attention: Cindy Little
									2004-007004

XXXXXXXXXX - RRSP withdrawals

This is in response to the correspondence that you forwarded to the Trust Accounts Division with respect to the above referenced taxpayer. In their letter of March 4, 2004, the Trust Accounts Division asked that we respond to you directly on this matter.

The facts in this situation are described in the letters of August 15, 2003, and March 22, 2004, from XXXXXXXXXX. XXXXXXXXXX estranged common law wife diverted funds from his RRSP for her own use, executing documentation without his authorization and funnelling the misappropriated funds through a joint bank account used by herself and the taxpayer, to obtain eventually control of the funds herself. In fact, the Bank's letter of March 22, 2004 states that a total of $XXXXXXXXXX was withdrawn from the RRSP and the "bulk of the funds" was transferred to an account in her name.

Comments:

Subsection 146(8) and paragraph 56(1)(h) of the Income Tax Act (the "Act") require a taxpayer to include in computing his or her income for a taxation year the total of all amounts received by the taxpayer in the year as a benefit out of or under an RRSP. Benefits include money and other property transferred out of the RRSP.

Where an individual receives the RRSP benefit directly or authorizes someone else, such as an agent, to receive it for him or her, the Act requires that the amount be included in the individual's income. If at the time of receipt or later, the money or property is stolen, there is no provision in the Act allowing a deduction from income for the amount of the value of the lost RRSP property. This is so even where it is the agent who steals the property.

If an individual or the individual's agent does not receive the RRSP benefit, the Act does not require an income inclusion. In other words, if money or other property was not legally transferred to or for the benefit of the individual or agent, there will be no tax consequences to the individual.

In Peter D Field 2001 DTC 236 (TCC), the taxpayer alleged that his estranged wife had fraudulently effected the withdrawal of funds from his RRSP by affixing his signature to the relevant documentation without his authorization, and that he had never received the funds or the benefits therefrom. In concluding that the taxpayer had never "received" the amounts within the meaning of subsection 146(8) of the Act, Judge Rowe made reference to Tatarchuk (W) Estate v M.N.R., (1991) 1 C.T.C. 2440 and said:

"I cannot see how the appellant - in the plain and ordinary sense - "received" any amounts as "benefits out of or under" an RRSP within the language used in subsection 146(8) of the Act. He did not receive any money from the RRSP withdrawal and he did not receive any benefit thereof. The joint account previously operated by the appellant and his wife was used as a conduit to funnel the misappropriated funds into a new account in her sole name and this procedure did not provide any benefit to him."

Conclusion:

Based on the interpretation of the word "received" in the Field case, we are of the view, that the amounts paid out of XXXXXXXXXX RRSP, that were funnelled by the estranged common law wife into her own bank account, were not "received" by XXXXXXXXXX within the meaning of subsection 146(8) and accordingly, should not be included in his income. However, any amount, which remained in the joint account at the disposal of XXXXXXXXXX, should be included in his income (as in Tatarchuk).

Access to information:

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the CRA'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 from Mrs. Jackie Page at (819) 994-2898, who will send the severed copy to you for delivery to the client.

Ghislain Martineau
Manager
Section du financement et des régimes
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch

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