28 July 1993 Income Tax Severed Letter 9305715 - RRSP and RRIF on Death

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.

XXXXXXXXXX                                   5-930571
                                             M.P. Baldwin
                                             957-8953

Attention: XXXXXXXXXX

July 28, 1993

Dear Sirs:

Re: Registered Retirement Savings Plan's (RRSPs) and Registered Retirement Income Funds (RRIFs)

This is in reply to your letter of February 18, 1993 in which you request a technical interpretation of the tax consequences on the death of the annuitant of an RRSP and a RRIF. We apologize for the delay in responding to your letter.

Since your questions appear to relate to factual situations, we are unable to reply to your queries at this time without first having knowledge of all relevant facts and having the opportunity to review all relevant documentation. When questions relate to a proposed transaction our comments may only be provided where the proposed transactions are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70- 6R2. As a consequence thereof, we may only offer the following general comments.

With respect to the tax treatment of an RRSP on the death of the annuitant, the Department's position is described in Interpretation Bulletin IT-500 of which we have enclosed a copy. For an RRSP, the general rule is that when a taxpayer dies, subsection 146(8.8) of the Income Tax Act (the "Act") provides for a deemed receipt of benefits immediately before his death equal to the fair market value of the property in the RRSP. There are two exceptions in which deductions can be made from this deemed receipt of benefits. They are:

1. any amount from the RRSP that becomes receivable by the taxpayer's spouse as a consequence of his death; and

2. any amount paid to a legal representative of the deceased that would have been a paragraph 146(1)(h) refund of premiums if paid directly to a beneficiary of the estate, provided that the amount is so designated jointly by the legal representative and the beneficiary.

With respect to the tax treatment of a RRIF on the death of the annuitant there are two possible alternatives. They are:

1. pursuant to subsection 146.3(6) of the Act the fair market value of the RRIF property is included in the deceased taxpayer's income in the year of death except to the extent of the portion thereof that, as a consequence of his death, becomes receivable by his spouse; and

2. pursuant to paragraphs 146.3(1)(f) and 146.3(2)(d) of the Act, an annuitant of a RRIF may elect in the plan or designate in a will that his or her spouse will continue as the annuitant of the RRIF after the initial annuitant's death. When this is done the provisions of subsection 146.3(6) of the Act will not apply on the death of the initial annuitant. Instead, the successor will become the annuitant as defined in subsection 146.3(1) of the Act. Subsection 146.3(6) of the Act will then have application on that spouse's death or at a later date should another spouse be subsequently named as annuitant.

In our opinion, the RRSP and RRIF must be left to the spouse and no restrictions may be placed on the plan in order for the RRSP or RRIF not to be taxable to the annuitant on death. In this situation, if the surviving spouse enters into an agreement with another party and no restrictions are put on the plan, then the tax status of the plan should not be affected.

However, if on the death of the annuitant, restrictions are placed on the plan and the spouse is to be the recipient of a life interest in the RRIF property, that spouse is not considered a successor annuitant and the interest which passes on death will not be considered a retirement income fund. Accordingly, on the death of the annuitant, the property in the RRIF will be taxed in the annuitant's hands pursuant to subsection 146.3(6) of the Act since there is no portion of the RRIF property which becomes "receivable by (the) spouse". The spouse receives only a life estate and has no legal title to the RRIF property.

The foregoing comments are an expression of opinion only and are not binding upon the Department. We hope, however, that they can be of assistance to you.

Yours truly,

for Director Financial Industries Division Rulings Directorate