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: Will a particular individual qualify as a financially dependent child for purposes of the deduction under paragraph 60(l) of the Act?
Position: Question of Fact
Reasons: General information provided. Where the individual has a physical or mental infirmity, income in excess of $13,814 in 2003 (indexed annually after 2003) will suggest that the person is not financially dependent, unless the contrary can be established.
2004-009127
XXXXXXXXXX Renée Shields
(613) 948-5273
November 24, 2004
Dear XXXXXXXXXX:
Re: Rollover of Registered Retirement Income Fund ("RRIF") for financially dependent child
This is in response to your facsimile of August 17, 2004 inquiring whether a particular individual would qualify for rollover treatment of his entitlement under the RRIF of his deceased mother.
The situation outlined in your letter relates to a factual one, involving a specific taxpayer. 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. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca.
Because your situation involves a specific taxpayer and a factual determination that falls within the responsibility of your CRA tax services office ("TSO"), we have taken the liberty of forwarding a copy of your inquiry and our reply to the Assistant Director of Client Services at the Calgary TSO. Although we cannot comment on your specific situation, we are prepared to provide the following information, which may be of assistance.
The CRA's general views regarding the taxation of RRIF amounts when the annuitant dies are contained in information sheet RC4178, "Death of a RRIF Annuitant." As discussed in RC4178, the general rule is that when the last annuitant of a RRIF dies, he or she is deemed to have received the fair market value of the RRIF immediately before death. Accordingly, that amount is reported as taxable income to the annuitant in the year of death.
However, the amount to be included in the deceased annuitant's income can be reduced by the amount that is paid under the RRIF as a "designated benefit" to a beneficiary of the annuitant. In general terms, a designated benefit is an amount paid out of or under a RRIF, as a result of the death of the annuitant, to a spouse, a common law partner or a financially dependent child or grandchild of the annuitant. We sometimes refer to these individuals as "qualified beneficiaries." A designated benefit will include RRIF amounts that are payable to the estate if the qualified beneficiary is a beneficiary of the estate and as long as a joint designation is filed by the estate's legal representative and the beneficiary using form T1090. In situations in which a designated benefit is paid to a qualifying beneficiary, the benefit is taxable to the beneficiary instead of the annuitant.
The determination of whether a child or grandchild is a qualified beneficiary because of a mental infirmity that resulted in financial dependency on the annuitant is the responsibility of the appropriate TSO. In this regard, subsection 146(1.1) of the Income Tax Act (the "Act") sets out a test for financial dependency. This test is also reflected in the Instructions on form T1090. A person with a mental or physical infirmity will be presumed not to be financially dependent if his or her income exceeds $13,814 for 2003 (indexed annually after 2003). However, even if the person's income exceeds this threshold, the person or the estate's legal representative may ask the appropriate tax services office to consider a written submission with additional information that may substantiate a determination of financial dependency.
When a financially dependent child or grandchild includes a designated benefit from a RRIF in his or her income, tax on the "eligible amount" of that benefit can be deferred by transferring it to an eligible registered plan or fund (i.e. an RRSP or a RRIF), or to an issuer to buy an eligible annuity. Chart 3 on page 4 of RC4170 can assist you in determining the eligible amount. With respect to the purchase of an eligible annuity, it is relevant to your inquiry to note that the Department of Finance has announced its intention to amend the Act for situations in which the qualified beneficiary is financially dependent because of a mental infirmity. This change will permit the beneficiary of the annuity to be a trust under which the mentally infirm individual is the sole person beneficially interested in the annuity payments. Once proclaimed to be in force, this amendment will be effective for taxation years after 2000.
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
c.c. Brenda Bauer
Assistant Director - Client Services
Calgary TSO
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2004
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2004