17 September 2008 External T.I. 2008-0275731E5 - Splitting pension income in case of 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: In case of the death of a spouse, would the other spouse have the right to split the eligible pension income that she receives in a taxation year with the deceased pursuant to section 60.03 of the Income Tax Act?

Position: If the other spouse is a pensioner according to subsection 60.03(1), if the deceased is a pension transferee according to the definition found in subsection 60.03, if form T1032 is completed and signed to elect to split the eligible pension income, it would be possible (except if the other spouse has made another election) to add to the deceased's final return the amount elected that does not exceed 50% of the eligible pension income multiplied by the proportion that the number of months at any time during which the pensioner was married or was in common-law partnership with the pension transferee is of 12 (assuming that her taxation year ends on December 31). The deceased's spouse will not be considered married to the deceased after the death of the spouse. The amount included in the final return is not a right or thing of the deceased and cannot be included in the separate return filed for the deceased pursuant to subsection 70(2) of the Act.

Reasons: Wording of the Act.

XXXXXXXXXX 								2008-027573
									Sylvie Labarre, CA
September 17, 2008

Dear Sir:

Re: Pension income split

This is in reply to your electronic message of April 21, 2008 in which you requested our opinion regarding the splitting of pension income in a particular situation where one of the spouses deceased in a taxation year.

In the particular situation described in your letter, the deceased's spouse receives an eligible pension income during the taxation year in which her spouse died. The legal representative of the deceased and the deceased's spouse would like to split the pension income received by the deceased's spouse between her and the deceased. You inquire whether such a split is possible and to what extent. You also request our view on whether the split-pension amount or a part thereof may be included in the separate return filed for the rights or things under 70(2) of the Income Tax Act (the "Act").

Our comments

The particular circumstances outlined in your message seem to relate to a factual situation involving specific taxpayers. As explained in Information Circular 70-6R5, Advance Income Tax Ruling, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions. When the situation involves a specific taxpayer and a completed transaction, the question should be directed to the appropriate Tax Services Office for their views, along with all relevant facts and documentation. However, we are prepared to offer the following general comments which may be of assistance.

We assume for the purpose of that letter, that the deceased's spouse will still be alive on December 31 and that her taxation year will end on December 31.

You will have to determine whether the deceased's spouse is a pensioner for the taxation year in which her spouse died and whether the deceased is a pension transferee for a taxation year. The deceased's spouse will be a pensioner for a taxation year if she receives eligible pension income in the taxation year and if she resides in Canada on December 31.

The deceased will be a pension transferee if the deceased was resident in Canada immediately before his death and if, at any time in the taxation year he was married to, or in a common-law partnership with a pensioner and was not, by reason of the breakdown of their marriage or common-law partnership, living separate and apart from the pensioner at the end of the taxation year and for a period of at least 90 days commencing in the taxation year.

If the deceased's spouse is a pensioner and the deceased person is a pension transferee, the deceased's spouse and the legal representative of the deceased will have to complete and sign Form T1032 to elect to split the eligible pension income. The split-pension amount will be the amount elected not exceeding 50% of the eligible pension income of the pensioner multiplied by the proportion that the number of months at any time during which the pensioner was married or was in a common-law partnership with the pension transferee is of 12.

The deceased's spouse will not be considered to be married to the deceased or in a common-law partnership with him after his death. Therefore, the maximum that the pensioner (the deceased's spouse) will be allowed to split with the pension transferee (the deceased) will represent only a portion of the amount equal to half of the eligible pension income. Section 35 of the Interpretation Act provides a definition of the word month as being a calendar month. In a situation where the pension transferee dies during the month of February, the number of months at any time during which the pensioner was married or was in a common-law partnership would be 2 and the maximum of the split-pension amount would be 2/12 of 50% of the eligible pension income.

If an election is made, the split-pension amount will be included in the final return of the deceased. As the split-pension amount is not a right or thing, the amount will not be included in the separate return filed for the rights or things of the deceased pursuant to subsection 70(2) of the Act.

Please note that the pensioner may file only one joint election for a particular taxation year.

We trust the above comments will be of some assistance.

Yours truly,

Alain Godin, Manager
for Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch