30 June 1993 Internal T.I. 9304987 F - Right and Things and Social Benefit Repayments

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.

XXXXXXXXXX

District Office Business and General DivisionXXXXXXXXXX  A\Assistant Director  Client Services 

Social Benefits Repayment

This is in reply to your memorandum dated February 16, 1993 concerning the above-noted subject in respect of a deceased individual (the Individual). We apologize for the delay in responding.

In the situation you have outlined, the Individual died on XXXXXXXXXX In preparing the Individual's return for the year of death, the Individual's representative included old age security (OAS) pension in the amount of $1,789.50.

The Individual's representative also elected to file a separate return under subsection 70(2) of the Income Tax Act (the Act) with respect to the value of "rights or things" of the Individual at the time of death. OAS pension of $362.37, which qualifies as a right or thing under subsection 70(2) of the Act, was reported as income in the separate return.

In assessing the Individual's return for the year of death, the amount of the Individual's OAS pension of $1,789.50 was increased by the amount of $362.37 Since an offsetting deduction was allowed under paragraph 60(w) of the Act, there was no change to the net income of the deceased Individual with respect to this return. However, the social benefits repayment calculation under section 180.2 of the Act, which was based on the amount of $2,151.87 ($1,789.50 + $362.37), resulted in the full amount of $2,151.87 being repayable.

As the Individual's representative does not believe that the two amounts should be combined in determining the amount of the social benefit repayment, you have asked for our views in this regard.

Our Comments:

Under section 180.2 of the Act, every individual (other than a trust) is required to pay a special tax (i.e., the Part I.2 Tax) in respect of certain types of income, including OAS pension, where the individual's income exceeds a certain threshold amount. The special tax payable is the lesser of two amounts determined under paragraphs 180.2(1)(a) and (b) of the Act. Part of paragraph 180.2(1)(a) refers to various types of income including OAS pension which were included "in computing the individual's income under Part I for the year" and part of paragraph 180.2(1)(b) refers to "the amount that would be the individual's income under Part I for the year".

The concern is whether an individual's "income under Part I for the year" (i.e., net income) for the purposes of paragraphs 180.2(1)(a) and (b) of the Act includes an amount of OAS pension which qualifies as a right or thing and has been included in a separate return.

With respect to the above concern, we have considered the provisions of section 3 and subsection 70(2) of the Act. In this regard, the preamble to section 3 of the Act states that "The income of a taxpayer for a taxation year for the purposes of this Part is his income for the year as determined by the following rules". In relation to this wording, subsection 70(2) of the Act, in connection with the election described therein concerning rights or things, states that "the legal representative shall file a separate return of income under this Part as if

(a)     the taxpayer were another person;

(b)     that other person's only income for the year were the value of the rights or things;..." (underlining added).

As a consequence of the above wording in subsection 70(2) and section 3 of the Act, it is our view that the Individual's "income under Part I" for the purposes of section 3 would exclude the value of rights or things (i.e., it would not include the OAS pension of $362.37) because the return in which the rights and things were included should be regarded as being that of someone other than the Individual.

In our view, it would follow that the Individual's "income under Part I for the year" for the purposes of section 180.2 of the Act would exclude the OAS pension amount of $362.37 (i.e., the Individual's OAS pension amount would be $1,789.50) with the result that the pension amount of $362.37 would not be repayable by the Individual. In connection with these comments, we also note that the return in which the rights and things were included as income would also be subject to the provisions of section 180.2 although it would be regarded as being the return of someone other than the Individual.

We are also mentioning that in connection with the case at hand, you have referred to the provisions of sections 114.2 and 118.93 which provide rules on deductions that can be claimed where separate returns are filed under certain provisions including subsection 70(2) of the Act. However, you will note that section 114.2 only applies to restrict the deductions being claimed under section 110 and section 118.93 limits the amount of tax credits available in situations where the specified separate returns are filed. In relation to the above circumstances, it is our view that, while those rules modify the manner in which the separate return under subsection 70(2) is to be filed, it does not alter our position that the separate return filed in respect of the Individual's rights or things at the time of death is to be considered to be that of someone other than the Individual for the purposes of section 180.2 of the Act.

Should you require further technical assistance, we would be pleased to provide our views.

P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch