24 January 1992 External T.I. 9131645 F - Family Lay Act–Estate Tsfr of RRSP Proceeds to Spouse Section 70(6)

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.

Attention:  19(1)

January 24, 1992

Dear Sirs:

Re:  Family Law Act, 1986 (Ontario) ("FLA")

This is in reply to your letter of November 11, 1991 concerning the FLA and the transfer on death of rental property and registered retirement savings plan ("RRSP") proceeds to a surviving spouse.

In your letter, you set out a set of "assumptions" and ask for our views on the income tax implications arising therefrom. It appears that your enquiry relates to specific transactions, either proposed or completed. Where a transaction is proposed, confirmation of the tax implications arising therefrom should be sought by way of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to the relevant District Taxation Office. We offer, however, the following general comments.

1.     With respect to rental property passing on death to a surviving spouse, relevant provisions of the Income Tax Act (the "Act") are subsections 70(5) and (6).

Taxable capital gains, allowable capital losses, recaptures of capital cost allowance and terminal losses that would otherwise arise on the death of an individual by virtue of a deemed disposition of capital property under subsection 70(5) of the Act are deferred if, on or after the individual's death and as a consequence thereof, the property is transferred or distributed to the individual's spouse and the requirements of subsection 70(6) of the Act are otherwise met.

2.     Where a deceased individual's surviving spouse elects to receive property under the FLA, the property transferred to the spouse would be in consequence of the death of the individual for the purposes of subsection 70(6) of the Act. It is our view that an election to receive under the FLA is an act by which the spouse refuses to accept the estate conveyed to her by will and constitutes a disclaimer under the will. With respect to the requirement in subsection 70(6) of the Act that the relevant property vest indefeasibly in the surviving spouse, we refer you to the comments in paragraph 7 of Interpretation Bulletin IT-449R concerning property received pursuant to a court order given under a family law act.

3.     Where the surviving spouse reaches a settlement with the executors and beneficiaries of the estate that property in the deceased's estate will be transferred to her in consideration of a release of her rights to make a claim under the FLA for an equalization of net family property, it is our view that the transfer would not be considered a transfer as a consequence of the death of the deceased. In this situation, the requirements in subsection 248(8) of the Act would not be met in that the transfer would not arise as a consequence of the terms of a will but as a result of a separate arrangement between the executors, beneficiaries and surviving spouse.

4.     Where the proceeds of an unmatured RRSP are paid to the deceased annuitant's legal representative, a joint election may be made by the representative and surviving spouse pursuant to subsection 146(8.1) of the Act. This election is discussed in detail in Interpretation Bulletin IT-500 and we refer you to paragraph 6 thereof which, as noted in paragraph 10 of the bulletin, is applicable to subsection 146(8.1) elections. As noted in paragraph 6, a joint election under subsection 146(8.1) may be made by the legal representative and surviving spouse if the laws governing intestacy provide the spouse with a right to the amounts paid out of an RRSP or if, by virtue of a court order in relation to an estate made pursuant to a law of a province providing for the relief or support of dependents, the spouse becomes entitled to receive either the entire estate or the estate's interest in the RRSP.

5.     Where a spouse beneficiary and the deceased's legal representative make a valid 146(8.1) election, the effect of the election is that the spouse is deemed to have received the RRSP proceeds in the year that they were received by the estate and neither the deceased nor the estate would be taxed on the proceeds. To offset the inclusion of the RRSP proceeds in the spouse's income, a deduction is available under paragraph 60(l) of the Act to the extent that she contributes to her RRSP an amount up to the amount of those proceeds. Note, however, that a deduction under paragraph 60(l) is available to the spouse only if the contribution to her RRSP is made in the year that the proceeds are deemed to be received by her; i.e., in the year that they were received by the estate, or within 60 days thereafter. Consequently, if the RRSP proceeds were received by the estate in 1991, the contribution to her RRSP would have to be made before March 1, 1992.

Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of IC70- 6R2. We trust however that they are of assistance.

Yours truly,

for DirectorFinancial Industries DivisionRulings Directorate