8 July 1992 Income Tax Severed Letter 9202215 - Death of a Partner

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.

920221
A.Y. Ho
24(1) (613) 957-4796

Attention: 19(1)

July 8, 1992

Dear Sirs:

This is in reply to your letter of January 9, 1992 wherein you requested a technical interpretation in regard to death of a partner of a partnership.

As stated in paragraph 6 of the Information Circular 70-6R2, the Department does not provide confirmation of tax consequences unless it is in the context of advance rulings. The situation you described appears to reflect a factual situation, as stated in paragraph 21 of the Information Circular 70-6R2, we do not provide opinion on factual situations. However, we can provide you with the following general comments and our comments will be divided into the following subject areas:

• • whether a partnership ceases to exist upon death of a partner;

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• • work in progress of a partnership at date of death of a partner;
• • rights or things; and
• • spousal registered retirement savings plan ("RRSP") contributions after the date of death of a partner.

Cease to exit

Whether a partnership ceases to exist upon death of its partner depends on the relevant provincial law and the partnership agreement. If the partnership is considered not to cease to exist upon the death of its partner by the operation of the relevant provincial law, whether the partnership agreement is written or verbal, then for income tax purposes, the partnership is considered not to cease to exist.

If a partnership is considered not to cease to exist upon death of a partner of the partnership, the deceased partner is considered to have a right or thing with respect to the income accrued from the end of the last fiscal period of the partnership to the date of death. The treatment of accrued income as a right or thing is not affected by the close proximity of the date of death to the partnership's fiscal year end.

Work in progress

If a partnership has work in progress at the time of a partner's death, as stated in paragraph 8 of IT-278R, the work in progress may be treated as:

• a) income of the deceased partner, b) income of the recipient, or c) capital.

If all the surviving partners, the deceased partner's legal representatives and any beneficiaries concerned all agree to allocate the value of the deceased partner's share of the work in progress to the beneficiaries in the partnership's fiscal period after the fiscal year the partner died, and the requirements under subsection 96(1.1) are met, then the value of the deceased partner's share of the work in progress is included in the beneficiaries' income under that subsection when allocated. This allocated income is not considered as right or thing of the deceased partner and therefore it cannot be included in the deceased partner's final or separate return for the year of death.

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Rights or things

The rights or things of a deceased taxpayer can be included in the terminal or separate return of the deceased. If the right or thing has been transferred or distributed to beneficiaries before the time for making an election under subsection 70(2) of the Act has expired, subsection 70(3) of the Act applies and the beneficiaries are required to include the value of the rights or things in their income. As discussed above, the deceased partner is considered to have a right or thing for the income accrued from the end of last fiscal period of the partnership to the date of death. Subsection 70(3) will not apply if the amount of this right or thing is distributed or transferred to the beneficiaries after the accrued income is capitalized in the deceased partner's capital account. The income accrued and allocated is considered as an allocation of income under subsection 96(1) and not 96(1.1) of the Act. Therefore, the legal representatives cannot treat this accrued and allocated income as allocation under subsection 96(1.1) of the Act. Spousal RRSP

After the death of a taxpayer, the legal representatives of the deceased cannot make and deduct the contributions to a RRSP which the deceased is an annuitant. This is so since the Act does not allow a legal representative to make RRSP contribution to a plan where the annuitant does not exist due to the death. However, the Department takes an administrative position that, the legal representatives can make and deduct the contribution, to the spousal RRSP where the surviving spouse is the annuitant, on behalf of the deceased. The deduction of the contributions to the spousal RRSP is available for the deceased terminal return and not available for any of the elective returns under subsection 70(2) or 150(4) of the Act. The reason is that, the deduction for spousal RRSP is under subsection 146(5.1) of the Act and the deductions under subsections 70(2) and 150(4) of the Act are limited to sections 110, 118 to 118.7 and 118.9 of the Act.

The RRSP deduction, in general, is limited to 18% of the taxpayer's earned income for the immediate preceding taxation year as provided for in paragraph 146(1)(g.1) of the Act. The earned income does not include rights or things or any income allocated to the beneficiaries under subsection 96(1.1) of the Act.

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We trust the above comments are of assistance.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

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