11 October 2019 APFF Financial Strategies and Instruments Roundtable Q. 9, 2019-0813281C6 F - Pension splitting - RRIF deemed benefit

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56(1)(h), (t), 60.03, 118(7), 146(5), (8), (8.2), (8.8) and 146.3(6)

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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Questions: Whether an amount deemed received out of or under a RRIF constitutes a "payment out of or under a RRIF" for the purposes of the definition of "pension income" in subsection 118(7)?

Position: No. For an amount to be considered "as a payment out of or under a RRIF" for the purposes of the definition of "pension income" in subsection 118(7), a payment shall arise from the performance of an agreement between the RRIF carrier and the annuitant and delivered in satisfaction of an obligation. An amount deemed to be received under subsection 146.3(6) is not in fact a "payment out of or under a RRIF" because no payment is made by the RRIF carrier and no payment is actually received by the last annuitant under the RRIF.

Reasons: Prior positions.

FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE

Question 9

Registered Retirement Income Fund: Payment received versus payment expected

Questions to the CRA

(a) Is a "payment received" from a registered retirement income fund ("RRIF") considered to be a "payment out of or under” a RRIF for the purposes of the definition of "pension income" in subsection 118(7) of the Income Tax Act (the "Act")?

(b) If yes, how can Technical Interpretations 2012-0453151C6 (footnote 1) and 2017-0685001E5 (footnote 2) be reconciled?

(c) If no, could the CRA clarify the meaning of the expression "payment out of or under” in relation to the splitting of the RRIF benefit under the definition of "pension income" in subsection 118(7)?

CRA Response

For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.

In Question 8 of this Roundtable of October 5, 2012 (footnote 3), the CRA clarified that an amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.

Consequently, an amount that is deemed to be received under subsection 146.3(6) is not eligible for pension income splitting under section 60.03, nor for the pension tax credit under subsection 118(3).

As part of Question 2 of the October 6, 2017 Roundtable (footnote 4), the CRA was asked whether it was possible to claim the deduction under subsection 146(8.2) in computing income in the year of the annuitant's death, in the event that an individual over-contributed to the individual’s registered retirement savings plan (“RRSP”) in a taxation year and died in the subsequent taxation year. The taxpayer died before withdrawing excess premiums from the RRSP, which the taxpayer did not deduct pursuant to subsection 146(5).

Under the conditions for the application of subsection 146(8.2), in order for an amount to be deductible in respect of a taxpayer in a particular taxation year (footnote 5), it is required inter alia that a payment from an RRSP in respect of undeducted premiums of the taxpayer, be received by the taxpayer in the year and that such payment is otherwise included in computing the taxpayer’s income for the year.

In the situation described, since the taxpayer died before having withdrawn the deducted premiums, the taxpayer would no longer be able to receive any payments related to those premiums. However, in its response, the CRA indicated that in that specific context, it "generally accepts that an amount deemed to be received by a deceased annuitant under subsection 146(8.8) and included in the annuitant’s income for the year of death under subsection 146(8) and paragraph 56(1)(h) should be treated as a payment received by the annuitant for the purposes of subsection 146(8.2).”

Comments made with respect to subsection 146(8.2) constitute an administrative concession and are applicable only with respect to that subsection.

Nathalie Boyer
(450) 926-7039
October 11, 2019
2019-081328

FOOTNOTES

Due to our system requirements, footnotes contained in the original document are reproduced below:

1 CANADA REVENUE AGENCY, Technical Interpretation 2012-0453151C6, October 5, 2012.

2 CANADA REVENUE AGENCY, Technical Interpretation 2017-0685001E5, October 23, 2017.

3 2012-0453151C6, supra footnote 1.

4 CANADA REVENUE AGENCY, Technical Interpretation 2017-0710681C6, October 6, 2017.

5 Which must be one of the years set out in paragraph 146(8.2)(c).

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Text of Severed Letter

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.

Principales Questions: Whether an amount deemed received out of or under a RRIF constitutes a "payment out of or under a RRIF" for the purposes of the definition of "pension income" in subsection 118(7)?

Position Adoptée: No. For an amount to be considered "as a payment out of or under a RRIF" for the purposes of the definition of "pension income" in subsection 118(7), a payment shall arise from the performance of an agreement between the RRIF carrier and the annuitant and delivered in satisfaction of an obligation. An amount deemed to be received under subsection 146.3(6) is not in fact a "payment out of or under a RRIF" because no payment is made by the RRIF carrier and no payment is actually received by the last annuitant under the RRIF.

Raisons: Prior positions.

TABLE RONDE SUR LA FISCALITÉ DES STRATÉGIES FINANCIÈRES ET DES INSTRUMENTS FINANCIERS DU 11 OCTOBRE 2019
APFF – CONGRÈS 2019

Question 9

Fonds enregistré de revenu de retraite : Paiement reçu versus paiement prévu

Questions à l’ARC

a) Est-ce qu’un « paiement reçu » d’un fonds enregistré de revenu de retraite (« FERR ») est considéré comme un « paiement prévu » par un FERR aux fins de la définition de « revenu de pension » du paragraphe 118(7) de la Loi de l’impôt sur le revenu (« L.I.R »)?

b) Si oui, comment réconcilier les interprétations techniques 2012-0453151C6 (footnote 1) et 2017-0685001E5 (footnote 2) de l’ARC?

c) Si non, l’ARC peut-elle nous préciser le sens à donner à l’expression « à titre de paiement prévu », relativement au fractionnement de la prestation FERR, de la définition de « revenu de pension » au paragraphe 118(7) L.I.R.?

Réponse de l’ARC

Pour qu’un montant soit considéré « à titre de paiement prévu par un fonds enregistré de revenu de retraite, ou en provenant » aux fins du sous-alinéa a)(iii) de la définition de « revenu de pension » au paragraphe 118(7) L.I.R., le montant doit être payé en exécution d’une obligation entre l’émetteur et le rentier d’un FERR.

Dans le cadre de la question 8 de cette table ronde du 5 octobre 2012 (footnote 3), l’ARC avait précisé qu’un montant réputé reçu en application du paragraphe 146.3(6) L.I.R., par le dernier rentier d’un FERR décédé, n’est pas un paiement prévu par un FERR, ou en provenant. En effet, lorsque le paragraphe 146.3(6) L.I.R. s’applique, aucun paiement n’est effectivement versé par l’émetteur du FERR au dernier rentier décédé.

Par conséquent, un montant réputé reçu en vertu du paragraphe 146.3(6) L.I.R. n’est pas admissible au fractionnement du revenu de pension permis en vertu de l’article 60.03 L.I.R. ni au crédit d’impôt pour pension prévu au paragraphe 118(3) L.I.R.

Dans le cadre de la question 2 de cette table ronde du 6 octobre 2017 (footnote 4), il avait été demandé à l’ARC s’il était possible de se prévaloir de la déduction prévue au paragraphe 146(8.2) L.I.R., dans le cadre du calcul du revenu dans l’année du décès du rentier, dans la situation où un particulier aurait cotisé en trop à son régime enregistré d’épargne-retraite (« REER ») au cours d’une année d’imposition et serait décédé au cours de l’année d’imposition suivante. Le contribuable serait décédé avant d’avoir retiré du REER les primes excédentaires, qu’il n’aurait pas déduites en vertu du paragraphe 146(5) L.I.R.

Selon les conditions d’application du paragraphe 146(8.2) L.I.R., pour qu’un montant soit déductible à l’égard d’un contribuable dans une année d’imposition donnée (footnote 5), il faut, entre autres, qu’un paiement d’un REER, lié à des primes non déduites par le contribuable, soit reçu par le contribuable dans l’année et que ce paiement soit par ailleurs inclus dans le calcul de son revenu pour l’année.

Dans la situation décrite, puisque le contribuable serait décédé avant d’avoir retiré les primes non déduites, il ne pourrait plus recevoir aucun paiement lié à ces primes. Cependant, dans sa réponse, l’ARC a indiqué que dans ce contexte précis, elle « accepte généralement qu’un montant réputé reçu par un rentier décédé en vertu du paragraphe 146(8.8) L.I.R. et inclus à son revenu pour l’année du décès en vertu du paragraphe 146(8) L.I.R. et de l’alinéa 56(1)h) L.I.R. soit considéré comme un paiement reçu par le rentier aux fins du paragraphe 146(8.2) L.I.R. ».

Les commentaires formulés à l’égard du paragraphe 146(8.2) L.I.R. constituent une concession administrative et sont applicables uniquement à l’égard de ce paragraphe.

Nathalie Boyer
(450) 926-7039
Le 11 octobre 2019
2019-081328

FOOTNOTES

En raison des exigences de nos systèmes, les notes de bas de page contenues dans le document original sont reproduites ci-dessous :

1 AGENCE DU REVENU DU CANADA, interprétation technique 2012-0453151C6, 5 octobre 2012.

2 AGENCE DU REVENU DU CANADA, interprétation technique 2017-0685001E5, 23 octobre 2017.

3 2012-0453151C6, précité note 1.

4 AGENCE DU REVENU DU CANADA, interprétation technique 2017-0710681C6, 6 octobre 2017.

5 Qui doit être l’une ou l’autre des années énoncées à l’alinéa 146(8.2)c) L.I.R.

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 118 - Subsection 118(7) - Pension Income - Paragraph (a) - Subparagraph (a)(iii)

deemed payment on death of last RRIF annuitant is not pension income

Is a “payment received” from a RRIF considered to be a “payment out of or under” a RRIF for purposes of the definition of “pension income” in s. 118(7). If no, how can this position be reconciled with 2017-0685001E5? CRA responded:

For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.

In Question 8 of this Roundtable of October 5, 2012 [2012-0453151C6], the CRA clarified that an amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.

Consequently, an amount that is deemed to be received under subsection 146.3(6) is not eligible for pension income splitting under section 60.03, nor for the pension tax credit under subsection 118(3). …

Comments made [in 2017] with respect to subsection 146(8.2) constitute an administrative concession and are applicable only with respect to that subsection.

Summary Under

Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(6)

s. 166.3(6) language does not go on to deem there to be payment by RRIF issuer

Under s. 146.3(6), the last annuitant under a RRIF is deemed, upon death, to have received, immediately before death, an amount out of or under a RRIF equal to the FMV of the property of the fund at the time of the death. The definition of “pension income” in s. 118(7) – (a)(iii) refers inter alia to “a payment out of or under a registered retirement income fund.”

CRA did not consider that this wording was sufficient to render a payment deemed by s. 146.3(6) to have been paid out of a RRIF to thereby qualify as pension income, stating:

For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.

… [A]n amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.

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11 October 2019 APFF Financial Strategies and Instruments Roundtable Q. 9, 2019-0813281C6 F - Pension splitting - RRIF deemed benefit

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