13 December 1989 Ministerial Letter 59168 F - Taxation of Employee Benefit Plan Beneficiaries at 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.

Dear Sirs:

Re:  Employee Benefit Plans ("EBPs")  Purchase of annuities

This is in reply to your letter of November 24, 1989, in respect of the taxation of EBP beneficiaries at death, when they have previously elected to have their EBP benefits paid to them through an annuity purchased and held by the Plan trustee.

Subsection 70(2) of the Income Tax Act (the "Act") which applies to the taxation of "rights or things" may be applicable in respect of an entitlement out of a Plan on the death of an EBP beneficiary to bring that entitlement into income in the year of death.  However, such a determination will depend upon the nature of the deceased's interest in the Plan.  Factors which must be taken into account in determining whether an amount is a "right or thing" are discussed at length in Interpretation Bulletin IT-212R2 and in particular paragraphs 17 and 19 thereof.

When an amount is taxable under subsection 70(2) of the Act in the final return of a deceased, in certain instances, beneficiaries of the deceased's estate may instead have the amount taxed in their hands in accordance with the provisions of subsection 70(3) of the Act.

Superannuation benefits paid from an EBP (i.e. an unregistered pension plan excluded from the Retirement Compensation Arrangement Provisions) are not subject to the provisions of subsection 70(2) of the Act but are subject to taxation in accordance with paragraph 6(1)(g) of the Act unless they are attributable to services rendered in a period during which the employee was not resident in Canada.  In that latter case the benefits are taxable in accordance with subparagraph 56(1)(a)(i) of the Act.  IT-212R2 and IT-502 provide greater detail in this respect.

Superannuation benefits are taxable upon receipt to the recipient thereof.  There are no provisions in the Act which require them to be taxed in the final return of the deceased.

We trust these comments are satisfactory to your needs.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate