30 May 2005 External T.I. 2005-0127821E5 - RRIF - Disabled Child Beneficiary

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: Can an amount be transferred out of an RRIF on a tax-deferred basis under paragraph 60(l), to an infirm adult child of the annuitant of the RRIF on the death of the annuitant?

Position: Provided the amount is a designated benefit as defined in subsection 146.3(1) of the Act, the amount may be transferred in accordance with paragraph 60(l) to an RRSP, a RRIF or an annuity.

Reasons: An infirm adult child must be financially dependent on the annuitant of the RRIF at the time of the annuitant's death to qualify for a transfer in accordance with paragraph 60(l) of the Act.

XXXXXXXXXX 							2005-012782
G. Allen
May 30, 2005

Dear XXXXXXXXXX:

Re: RRIF - Disabled Child Beneficiary

This is in reply to your letter dated March 30, 2005, wherein you enquire whether a disabled child who is the sole beneficiary of the child's mother's registered retirement income fund (RRIF) would be entitled to a rollover under paragraph 60(l) of the Income Tax Act (the "Act").

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Revenue Agency (CRA). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/tax/technical/incometax/menu-e.htm l.

Our Comments

The CRA has published Information Sheet, RC4178 entitled "Death of a RRIF Annuitant", which provides general information about the taxation of amounts held in a RRIF at the time of the death of the last annuitant under a RRIF and the taxation of any amounts paid out of a RRIF because of the annuitant's death.

Upon the death of the last annuitant of a 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 is included in the deceased annuitant's income for the year of death pursuant to paragraph 56(1)(t) of the Act.

While an amount must be included in the deceased annuitant's income for the year of death, 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 of an amount not exceeding a specific percentage of the total "designated benefits" in respect of a RRIF.

Subsection 146.3(1) of the Act defines "designated benefit", in general, to mean the total of amounts paid to an individual out of or under a RRIF after the last annuitant's death that would be a "refund of premiums" had the fund been an unmatured registered retirement savings plan ("RRSP"). A "refund of premiums" is defined in subsection 146(1) of the Act to include a payment to a child or grandchild of the last annuitant under an RRSP who was financially dependent on the annuitant for support at the time of the annuitant's death.

An amount that qualifies as a designated benefit is taxable to the recipient child or grandchild in accordance with subsection 146.3(5) and paragraph 56(1)(t) of the Act. If the child or grandchild was dependent on the last annuitant because of a physical or mental infirmity, the designated benefit is also an "eligible amount" pursuant to subsection 146.3(6.11) of the Act. A deduction under paragraph 60(l) of the Act is available to offset the recipient's income inclusion where the eligible amount is transferred to an RRSP, RRIF or an annuity under which the child or grandchild is the annuitant.

Financial Dependence

It is assumed that, unless the contrary is established, a child was not financially dependent on the annuitant at the time of the annuitant's death if the income of that child for the taxation year preceding the year of death exceeded the basic personal amount in subsection 118(1) of the Act ($8,012 for 2004). To establish the contrary, the child or the child's legal representative may write to the tax services office outlining the reasons why the child should be considered financially dependent on the annuitant at the time of death. Factors that would be considered when establishing the existence of a child or grandchild's financial dependence include:

1. the income of the child from all sources;

2. the cost of living (including the cost of the child or grandchild's medical or special care requirements being paid by the annuitant at time of death) and the ability of the child to provide for self-support; and

3. the support provided to the child from sources other than income (including the annuitant).

Where the annuitant can substantiate that he or she is required to financially support the child or grandchild because the cost of the child or grandchild's special needs exceed the child or grandchild's income, an argument may be made that the child or grandchild is financially dependent on the annuitant. This Directorate can only make this determination when all of the facts are presented in the context of an application for an advance income tax ruling.

We trust the above comments will be of assistance.

Yours truly,

Roberta Albert, CA
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch