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
Attention: XXXXXXXXXX
Dear Sirs:
This is in reply to your letter of June 8, 1993, concerning the tax implications where the annuitant of a registered retirement savings plan ("RRSP") dies.
You describe a situation where a husband dies, the estate is the beneficiary of his RRSP and the Will provides that his wife shall be entitled to a life interest in all sums held in the RRSP. During the wife's lifetime, the trustee has the power to encroach upon the capital represented by the RRSP proceeds. You ask if tax is exigible on the RRSP proceeds upon the husband's death or whether the tax may be postponed until the death of the wife.
Your enquiry appears to relate to a particular arrangement. Confirmation of the tax implications inherent in a particular arrangement is given by this Directorate only where the arrangement is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where the arrangement is already in place, the enquiry should be forwarded to the relevant District Taxation Office. We offer, however, the following general comments.
Where an estate is the RRSP beneficiary and the surviving spouse's sole interest in the RRSP proceeds is as a life tenant under the Will, it is our view that the fair market value of the RRSP on the date of death would be included in the deceased's income under subsection 146(8.8) of the Income Tax Act (the "Act"). As indicated by the following comments, the fact that the surviving spouse is entitled as a life tenant to the use of the RRSP proceeds would not of itself allow the postponement of tax on such income.
The enclosed copy of Interpretation Bulletin IT-500 sets out the provisions of the Act that apply on the death of an RRSP annuitant and explains the Department's general positions on the tax implications arising under various arrangements.
As explained in paragraph 9 of IT-500, where an unmatured RRSP is involved and the spouse is a named beneficiary under the Will, the spouse and the legal representative may jointly make a designation under subsection 146(8.1) of the Act using form T2019. Where an otherwise valid designation is made, the designated amount is deemed to be received by the spouse in the year it is received by the estate as a benefit that is a refund of premiums. The designated amount would thus be included in the spouse's income and a deduction of that amount would be available under subsection 146(8.9) of the Act in computing the deceased's income.
As stated in paragraph 10 of IT-500, it is a question of fact whether or not the legal representative will be able to designate as a refund of premiums all or a portion of the amount received out of the RRSP by the estate. By reference in paragraph 10, the comments in paragraph 6 of IT-500 are relevant, including the comment:
"This would also include the case where, under the Will, the legal representative has the power to encroach on capital in favour of the spouse......".
Because of the requirements in paragraph 60(l) of the Act, however, the deferral of tax using the provisions of subsection 146(8.1), subsection 146(8.9) and paragraph 60(l) of the Act can be achieved only where an amount equal to the amount designated under subsection 146(8.1) is contributed to the spouse's RRSP within 60 days after the end of the year in which the amount was received by the estate.
Our above comments apply even where the husband and wife were separated but not divorced.
Our comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate146(8.1) 7255-4
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