24 January 2006 External T.I. 2005-0157581E5 - taxation of CPP death benefits

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: request for administrative relief

Position: none available

XXXXXXXXXX 						2005-015758
							Annemarie Humenuk
January 24, 2006

Dear XXXXXXXXXX:

Re: Taxation of CPP Death Benefits

This is in reply to your letters of October 13, and November 3, 2005, in which you ask for fairness consideration in respect of the death benefit payable under section 71 of the Canada Pension Plan ("CPP death benefit") received by the Estate of the XXXXXXXXXX

All statutory references in this letter (other than the reference above) are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

You have asked whether the CPP death benefit that was received by you, as executor of your brother's estate, could be included in the final T1 income tax return for your brother rather than on a T3 Trust return for the estate.

Paragraph 56(1)(a.1) of the Act requires the estate of a deceased person to include the amount of the CPP death benefit in its income for the year in which the amount is received. As the estate is considered to be a separate taxpayer from the deceased, the CPP death benefit is required to be included in the income of the estate on its T3 tax return for the year in which the amount was received by the estate. There is no provision in the Act that permits the amount to be included in the income of the deceased taxpayer.

However, to the extent that the income of the estate, including the CPP death benefit, is payable to a beneficiary of the estate in the year that it was received by the estate, the estate is entitled to a deduction under subsection 104(6) of the Act for the amount so payable. Correspondingly, the amount so payable is included in the beneficiary's income under subsection 104(13) of the Act. An election exists under subsection 104(13.1) of the Act under which the estate can forgo the deduction for the income that was payable to the beneficiary with the result that the estate, and not the beneficiary pays tax on such income. Thus, when the conditions in subsection 104(13.1) of the Act are met, there is a choice to be made by the executor as to whether the amount is taxed in the hands of the estate on a T3 income tax return or in the hands of the beneficiary to whom the amount was made payable.

In your letter, you request "tax fairness consideration". The fairness provisions described on the Canada Revenue Agency's website, http://www.cra-arc.gc.ca/agency/fairness/fair-prov-e.html, refer to the provisions in section 220 that were enacted in 1991 as part of the fairness package. These provisions give the Minister of National Revenue the discretion, where it is reasonable and fair to do so, to cancel and waive penalties and interest, accept late-filed, amended, or revoked elections and issue income tax refunds beyond the normal three-year period where taxpayers have been unable to meet their tax obligations. These provisions do not permit the Canada Revenue Agency to grant a taxpayer the right to file his or her return otherwise than in accordance with the Act. For more information on the fairness provisions, refer to Information Circulars, IC 92-1 Guidelines for accepting late, amended, or revoked elections, IC 92-2 Guidelines for the cancellation and waiver of interest and penalties, IC 92-3 Guidelines for refunds beyond the normal three year period.

Although we cannot grant the relief requested, we trust that our comments have explained the basis on which the amount is to be included in the income of the estate and the reasons why the Canada Revenue Agency is not able to accede to your request.

T. Murphy
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch

c.c. Wendy Denard,

Estates and Trusts,
Ottawa Technology Centre