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: Where a taxpayer dies intestate and applicable provincial law specifies the ratio concerning the division of the deceased's assets, does CRA accept such an allocation for purposes of subsection 248(8) of the Act?
Position: In general, yes.
Reasons: Provided property of a deceased taxpayer is distributed to the deceased's beneficiaries in accordance with the proportions specified under applicable provincial intestacy law, and there are no agreements between beneficiaries that in any way alter the proportions of property distributed, the CRA will consider the property to be distributed as a consequence of the death of a taxpayer, in accordance with subsection 248(8) of the Act.
2011 STEP Conference QUESTION #7 - INTESTACY
Assume that a taxpayer dies intestate and that, under applicable provincial law, the assets will be divided between a surviving spouse and, say, children, in accordance with a sharing ratio as defined by provincial law. Assume that all parties agree to a distribution of assets such that appreciated capital property and amounts in an RRSP or RRIF become property of the surviving spouse and other assets (say, cash) are left to children. Such an allocation of assets postpones the incidence of taxation at death, under various rollover provisions avoidable on a transfer of assets to a spouse.
Does the CRA accept that such an allocation can be made for tax purposes, in order to maximize the benefit of the spousal rollover and defer tax?
CRA Response
When a taxpayer dies, certain provisions of the Act permit property of the deceased taxpayer to be transferred as a consequence of the death of the taxpayer to certain individuals on a tax-deferred (rollover) basis, e.g., a rollover under paragraph 60(l) of a refund of premiums as defined in subsection 146(1) or a rollover of capital property under subsection 70(6).
Generally, in a situation where a taxpayer dies intestate, subsection 248(8) provides that "a transfer, distribution or acquisition of property as a consequence of the law governing the intestacy of a taxpayer ... shall be considered to be a transfer, distribution or acquisition of the property as a consequence of the death of the taxpayer." Accordingly, provided property of the deceased taxpayer is distributed to the deceased's beneficiaries in accordance with the proportions or ratios specified under applicable provincial intestacy law, and there are not any agreements between beneficiaries that in any way alter the proportions or ratios of property distributed to the deceased's beneficiaries, the CRA will consider the property to be distributed as a consequence of the death of the taxpayer.
For example, assume the following facts:
- A taxpayer dies intestate and has a surviving spouse and one child.
- The taxpayer's net estate (after payment of estate expenses) comprises $500,000 of cash and $500,000 of RRSPs of which the taxpayer's estate is the beneficiary.
- Applicable provincial intestacy law requires 50% of the net estate to go to the taxpayer's surviving spouse and 50% to the taxpayer's only child.
Provided the total assets of the deceased taxpayer's net estate ($1,000,000 in the above example) are distributed in accordance with the applicable provincial intestacy law, i.e., 50% each to the surviving spouse and child ($500,000 of property each), and there exist no agreements that would alter the 50% ratio, in our view, the distribution would be as a consequence of the law governing the intestacy of the taxpayer for purposes of subsection 248(8) of the Act. It is not our view that $250,000 of cash and $250,000 of RRSP property would each have to be distributed to the surviving spouse and child for the distribution to be as a consequence of the law governing the intestacy of the taxpayer.
Gary Allen
January 11, 2012
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