2005 Ruling 2004-0108491R3 - Financially dependent child, mental infirmity

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: For purposes of clause 60(l)(v)(B.01), is a child financially dependent on an annuitant by reason of physical or mental infirmity?

Position: Yes

Reasons: Evidence provided by legal representative to support conclusion that child was financially dependent on annuitant at time of death by reason of mental infirmity. In this case, the child had income of less than the personal amount in 2003, and this suggests that the child was financially dependent on the annuitant at the time of death. Also, the child is recognized under the XXXXXXXXXX as having a mental impairment and receives social assistance from the province as a result of this impairment.

2004-010849
XXXXXXXXXX G. Moore
(613) 957-8289
XXXXXXXXXX , 2005

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling - Registered Retirement Savings Plan ("RRSP")
Refund of Premiums - XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX, in which you request an advance income tax ruling on behalf of the above-named taxpayer. We also acknowledge your subsequent submissions of XXXXXXXXXX, and telephone conversations (XXXXXXXXXX).

We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the ruling request is:

(i) in an earlier return of the taxpayer or a related person,

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,

(iii) under objection by the taxpayer or a related person,

(iv) before the courts, or

(v) the subject of a ruling previously issued by the Directorate to the taxpayer or a related person.

Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions are as follows:

Facts

1. XXXXXXXXXX (the "Deceased") died on XXXXXXXXXX, having made his Last Will and Testament (the "Will") on XXXXXXXXXX, a copy of which you submitted. The Deceased's social insurance number ("SIN") was XXXXXXXXXX.

2. XXXXXXXXXX (the "Daughter") is the Deceased's Daughter. The Daughter's SIN is XXXXXXXXXX.

3. Immediately before his death and at all other material times referred to herein, the Deceased and the Daughter were residents of Canada for purposes of the Act.

4. As of the date of death of the Deceased and for several years prior, as a result of her mental infirmity, the Daughter was dependent on the Deceased. The Daughter is in receipt of a disability pension under the XXXXXXXXXX

XXXXXXXXXX

5. At the time of death, the Deceased's RRSP's estimated fair market value was approximately $XXXXXXXXXX.

6. The Daughter's income for the XXXXXXXXXX taxation year was less than $XXXXXXXXXX.

7. Under the Will, half of the residue of the estate of the Deceased left after the payment of debts and expenses is to be transferred to the Daughter, for her use and benefit absolutely. It is the intention of the executor of the Will (the "Executor") that the proceeds of the Deceased's RRSP be transferred to an RRSP under which the Daughter is the annuitant.

Proposed Transactions

8. The Executor will instruct the issuer of the Deceased's RRSP to transfer the proceeds of the Deceased's RRSP to an RRSP under which the Daughter is the annuitant.

9. The Executor and the Daughter will jointly elect, pursuant to subsection 146(8.1) of the Act, that the amount paid out of the Deceased's RRSP to the Estate, that would have been a refund of premiums, will be deemed to be received by the Daughter at the time it was paid as a benefit that is a refund of premiums. The joint election will be made by the Executor and the Daughter by filing a completed Form T2019, in the year that the proceeds of the RRSP are paid to the Estate with the income tax return of the Daughter for the year. The Executor will then submit a copy of the form to the Canada Revenue Agency and request an adjustment to the net income reported by the Deceased in the year of death income tax return.

Purpose of the Proposed Transactions

The purpose of the proposed transaction is to allow the Daughter to transfer the proceeds of the Deceased's RRSP to an RRSP under which she is the annuitant and to defer tax on the RRSP proceeds to the date that the Daughter withdraws amounts from her RRSP.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, we rule as follows:

A. Provided a joint designation is made by the Executor and the Daughter in prescribed form pursuant to subsection 146(8.1) of the Act, the amounts received by the Daughter ("the Benefit") will be a refund of premiums as that term is defined under subsection 146(1) of the Act.

B. The Benefit will be included in the Daughter's income for the year pursuant to the provisions of paragraph 56(1)(h) and subsection 146(8) of the Act.

C. The Daughter will be entitled to deduct from her income for the year the aggregate of all premiums paid in the year or within 60 days after the end of the year as does not exceed the Benefit received in the year and to the extent otherwise permitted under the provisions of paragraph 60(l) of the Act. For greater certainty, for the purposes of clause 60(l)(v)(B) of the Act, the Daughter was dependent by reason of mental infirmity on the Deceased, the annuitant under the plan.

D. Upon making the election referred to in ruling (A) above, the amount paid out under the RRSP and deemed to have been received by the Daughter may be deducted to the extent allowed by paragraph 146(8.9) of the Act from the amount so deemed to have been received by the Deceased pursuant to subsection 146(8.8) of the Act.

The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002, and are binding on the Canada Revenue Agency provided that the proposed transaction is completed by XXXXXXXXXX.

Yours truly,

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