27 April 1992 Roundtable, 9211160 F - Refund Of Premiums

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.

Author:  M.P. Baldwin

April 27, 1992

PRAIRIE TAX CONFERENCE

MAY 19 & 20, 1992

DRAFT/EBAUCHE

QUESTION 14

What is the Department's interpretation of Paragraph 146(1)(h)  and Subsection 146.3(6.1) of the Income Tax Act of Canada (the "Act"), specifically as it relates to the phrase "child or grandchild", in the following example:

-      Mother has a Registered Retirement Income Fund ("RRIF").

-      Mother passes away, there is no surviving spouse.

-      Daughter is over the age of 18, but is financially dependent on mother, i.e. she has no income and lives in    mother's home.

-      Daughter is not physically or mentally infirm.

-      Daughter is the beneficiary of mother's estate.

-      The daughter is the natural child of the mother as defined in Section 252(1)(a) of the Act.

On deregistration of the RRIF due to the mother's death, can the proceeds be treated as a refund of premiums to the daughter, and be included in the income on the daughter's personal tax return.

Department's Position

If at the time of death the mother had no spouse and the daughter was financially dependent on the mother, the proceeds paid out of the mother's RRIF can be treated as a refund of premiums pursuant to subsection 146.3(6.1) and paragraph 146(1)(h) of the Act.

With respect to the financially dependent requirement, subparagraphs 146(1)(h)(iii) and (iv) of the Act provide that it shall be assumed, unless the contrary is established, that the Daughter was not financially dependent on the Mother at that time if:

(a)     any person other than the mother was permitted a      deduction under paragraph 118(1)(d) of the Act in respect of      the child in computing her tax payable under Part 1 for the      taxation year immediately preceding the taxation year in      which the mother died, or

(b)     the income of the daughter exceeded $5,000 for the year immediately preceding the taxation year in which the Mother died.

Accordingly, in the above situation and assuming (a) is met, the daughter would be considered financially dependent on the mother and the proceeds from the mother's RRIF would be considered a refund of premiums to the daughter.