2 June 2006 External T.I. 2006-0178501E5 - Amounts paid to Employee after Death

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 an amount paid by an employer in recognition of long service of an employee after his or her death be considered a death benefit or a retiring allowance?

Position: Question of fact, but likely a death benefit in the circumstances

Reasons: wording of the legislation

XXXXXXXXXX 							2006-017850
								Kimberly Duval
(613) 599-6054
June 2, 2006

Dear XXXXXXXXXX:

Re: Amount paid to Employee after Death

This is in response to your e-mail correspondence of March 29, 2006 and your subsequent telephone conversation with Mary Pat Baldwin of our office on April 19, 2006, requesting our comments as to whether an amount paid by an employer in recognition of long service of an employee after his or her death, could be rolled directly to the employee's registered retirement savings plan ("RRSP") or that of his or her spouse.

The situation outlined in your e-mail 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. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance. Copies of interpretation bulletins referred to in this letter are available on our Web site at http://www.cra-arc.gc.ca/formspubs/menu-e.html.

The Canada Revenue Agency (the "CRA") has provided its general views regarding retiring allowances in Interpretation Bulletin IT-337R4. You will note that paragraph 15 of IT-337R4 states specifically that an amount received as a consequence of the death of an employee is not considered a retiring allowance for purposes of the Income Tax Act (the "Act"). The comments in paragraph 18 of IT-337R4 only apply where an employee ceased employment and was entitled to receive a retiring allowance but he or she dies before the retiring allowance is paid.

Conversely, a "death benefit" is defined in subsection 248(1) of the Act to mean the total of all amounts received by a taxpayer in a taxation year on or after the death of an employee in recognition of the employee's service in an office or employment. Where an employee is employed at the time of his or her death and the employer decides to pay his or her estate an amount in recognition of the employee's long service with the employer, the payment would qualify as a death benefit for purposes of the Act. The CRA's general views regarding death benefits are provided in IT-508R, Death Benefits.

This determination is ultimately a question of fact and depends on the relationship between the employee and the employer at the time of the employee's death. However, in either case, no contributions could be made to the deceased annuitant's RRSP since on death, a taxpayer can no longer be the annuitant of an RRSP. The deceased individual's legal representative can make contributions to the surviving spouse's or common-law partner's RRSP in the year of death or during the first 60 days after the end of that year, provided the deceased individual has RRSP deduction room available.

We trust our comments will be of assistance to you.

Yours truly,

Mary Pat Baldwin, CA
for Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch