9 January 1992 Income Tax Severed Letter 9130825 - Rights or Things Accrued CD Interest OAS ??Lspayment

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Subject: RIGHTS OR THINGS ACCRUED CD INTEREST OAS LSPAYMENT Section(s): 70(1)(a), 70(2)]

913082
R.B. Day
(613) 957-2136

XXX

January 9, 1992

Dear XXX:

We are writing in reply to your letter of November 5, 1991, wherein you requested our comments on the application of subsections 70(1) and (2) of the Income Tax Act (the Act) with respect to the following items of income.

• 1. Interest earned on term deposits and similar investments which become due and payable upon the death of the taxpayer.

As we understand it, it is your view that the interest on term deposits and similar investments, payable to the estate upon the death of the taxpayer, would not be, "an amount of interest ... or other amount payable periodically", would not be included in the year of death return under paragraph 70(1)(a) of the Act, and would be considered to be "rights or things" for purposes of subsection 70(2) of the Act.

In support of this view, you quoted the following comments in paragraph 1 of IT-210R regarding the interpretation of paragraph 70(1)(a) of the Act: " The words "deemed to have accrued to the day of death' as used in this subsection do not refer to amounts which had become payable on or before the date of death." Since term deposits along with the accrued interest becomes due and payable upon the death of an individual, it is your view that the interest would not be a periodic payment and that the comments previously quoted support this conclusion.

Our Comments

We are unable to agree with your views in this regard.

It is the Department's view that because interest accrues on a daily or other periodic basis, interest is considered to be "an amount payable periodically" for purposes of paragraph 70(1)(a) of the Act. Thus, at the date of death, all accrued interest on term deposits and similar investments that become due and payable upon the death of the taxpayer should be reported in the deceased's return pursuant to paragraph 70(1)(a) of the Act.

This position is supported by the comments in paragraph 1 of IT-210R immediately following the sentence quoted in your letter.

• "For example, if a deceased taxpayer owned bonds, the value of the interest accrued from the last interest date preceding his death to the date of death would be brought into income for the year of his death by subsection 70(1); whereas, if he also had on hand matured interest coupons on the bonds, the value of those coupons would be brought into income by subsection 70(2), not by subsection 70(1)."
• 2. Old age security (OAS) payments applied for and received by a deceased taxpayer's executor.

Upon reaching age 65 an individual may, either voluntarily or through neglect, fail to apply for benefits. Upon death of the individual, the executor discovering such a situation may apply for and receive the deceased's OAS benefits. It is your understanding that in these circumstances the OAS payment would be received as a lump-sum payment, without interest, for all periods that the deceased would have received such payments had the individual applied for same prior to the date of death.

It is your view that if the lump-sum payment could be considered due and unpaid at the date of death, the amount would be included in income under subsection 70(2) of the Act. However, if the OAS payments are not considered to be due and unpaid until application is made, the amount would be income of the deceased's estate.

Our Comments

Subsection 29(1) of the Old Age Security Act (the OASA) permits the estate or its representatives to apply for benefits that would have been payable to the deceased person prior to the date of death had such application been made and approved. Such an application by the estate must be made within one year of the date of death of the deceased person. Subsection 29(3) of the OASA deems an application made under subsection (1) to have been received on the date of death of the person who would have been entitled to payment of the benefit.

In view of the forgoing, it is our opinion that the lump-sum OAS benefit would be considered to be due and unpaid as of the date of death and would, therefore, be considered to be a right or thing for purposes of subsection 70(2) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

J. Szeszycki
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch