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: Whether in the province of Quebec, irrevocable beneficiaries of a RRIF are jointly and severally liable for taxes applicable to the RRIF owing by the estate of a deceased RRIF annuitant even if the proceeds of the RRIF do not flow through the estate of the annuitant.
Position: Yes. If the estate has insufficient funds to pay the taxes owing arising from the RRIF, the recipient of the proceeds of the RRIF is jointly and severally liable for the taxes applicable to the RRIF proceeds.
Reasons: Based on the wording of subsection 160.2(2) of the Act
2005-011172
XXXXXXXXXX G. Moore
(613) 957-8982
May 11, 2005
Dear XXXXXXXXXX:
Re: Subsection 160.2(2) of the Income Tax Act
This is in response to your letter of January 16, 2005, inquiring about subsection 160.2(2) of the Income Tax Act (the "Act").
You have asked about the Canada's Revenue Agency's ("CRA") position in the following scenario: In the province of Quebec, under a registered retirement income fund ("RRIF") in the form of a life insurance contract, the RRIF annuitant has designated irrevocable beneficiaries who are not related to the annuitant through blood, marriage or adoption, and who are not beneficiaries of the estate of the deceased RRIF annuitant. Upon the death of the RRIF annuitant, the property held by the RRIF flows directly to the irrevocable beneficiaries without forming part of the estate of the deceased RRIF annuitant. Would the irrevocable beneficiaries be held jointly responsible for the payment of taxes, in the event the estate of the deceased RRIF annuitant is incapable of paying part or all of the taxes owing applicable to the RRIF?
The situation outlined in your letter appears to relate 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 CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. 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 ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.
A beneficiary of a RRIF may be designated in the RRIF contract or in the deceased annuitant's will. Where a beneficiary, including the estate, is named in the RRIF contract, amounts paid from the RRIF after the death of the last annuitant are to be paid out to that person. Where a beneficiary is designated in the will, amounts will generally be paid to the estate and distributed by the legal representative of the deceased annuitant to the beneficiary, as designated in the will.
Where the last annuitant under a RRIF has died, the deceased annuitant is deemed by subsection 146.3(6) of the Act to have received, immediately before his or her death, a benefit equal to the fair market value of the property held in the RRIF at the time of death. Although there is no payment actually made by the carrier out of the RRIF to the annuitant at that time, the value of the property in the RRIF at the time of death is included in the deceased annuitant's income for the year of death.
Where an amount held in the deceased annuitant's RRIF is subsequently paid from the RRIF, the portion of the amount that was included in computing the income of the deceased annuitant (or any other person) is excluded from the amount that the recipient is required to include in income pursuant to paragraph 146.3(5)(a) of the Act.
The deceased annuitant's estate is responsible for the income taxes owing in respect of the deceased annuitant's final income tax return. The fair market value of the RRIF which must be included in income pursuant to subsection 146.3(6) of the Act will be included on this final return. Where the estate has insufficient property to pay the taxes owing, the provisions of subsection 160.2(2) of the Act provide that the recipient of the RRIF property can be liable for the taxes of the deceased annuitant relating to the deemed RRIF benefit which is included in the deceased annuitant's income under subsection 146.3(6) of the Act. The recipient can only be liable for the deceased annuitant's taxes that relate to the amount received by the recipient. The above comments are also applicable to RRIFs in the province of Quebec.
We trust that these comments will be of assistance.
Yours truly,
Steve Tevlin
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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