1 March 1994 External T.I. 9336045 - RRIF BENEFICIARY - FINANCIALLY DEPENDENT CHILD

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.

      RULINGS DIRECTORATE
      CORRESPONDENCE SUMMARY
                                                            933604

Principal Issues:

Must a mentally infirm child who is the beneficiary of a RRIF meet the financially dependent requirement in paragraph 146(1)(h) in order to get a rollover?

Position TAKEN:

Yes, and it is assumed that the dependent is not financially dependent if their income exceeded the amount in 118(1)(c), unless the contrary is established.

Reasons FOR POSITION TAKEN:

Both current and proposed legislation refer to paragraph 146(1)(h). Question of fact if the assumption in the postamble of that paragraph is invalid.

Also see 5-920419 (Delorey).

                                                     933604
XXXXXXXXXX                                                     J. Stalker

Attention: XXXXXXXXXX

March 1, 1994

Dear Sirs:

Re: Refund of Premiums
Mentally infirm child

This is in reply to your letter of November 22, 1993 concerning amounts paid out of a registered retirement income fund ("RRIF") as a refund of premiums on the death of an annuitant. Your concern relates to a situation involving a 31-year-old mentally infirm child who is the stated beneficiary of the RRIF but who has income in excess of the limit referred to in paragraph 146(1)(h) of the Income Tax Act (the "Act").

Under current legislation, where an amount is paid directly from a RRIF to a child of the annuitant because the child is a named beneficiary in the RRIF contract, paragraph 146.3(6.2)(b) of the Act and the postamble of subsection 146.3(6.2) provide that the amount paid will be considered to be a refund of premiums as long as the amount would qualify as such within the meaning of paragraph 146(1)(h), if it had been paid from an RRSP rather than a RRIF. In addition, the annuitant has to have had no spouse at the time of death and the child has to have been "financially dependent" on the annuitant.

The Department of Finance Press Release 93-053, issued August 20, 1993 proposed amendments to subsection 146.3(6.2) so that a RRIF distribution to a child would no longer be deemed to be a "refund of premiums". Instead the proposed new terms "designated benefit" (as defined in draft paragraph 146.3(1)(b.01)) and "eligible amount" of a designated benefit (as defined in draft subsection 146.3(6.11)) would be relevant. Under proposed subparagraph 146.3(1)(b.01)(ii), where a child is a stated beneficiary, the designated benefit of a child in respect of a RRIF would be the total amounts paid from the RRIF to the individual after the death of the last annuitant that would be "refunds of premiums" if the RRIF had been an unmatured registered retirement savings plan at the time of death, within the meaning assigned by paragraph 146(1)(h).

Accordingly, both current and proposed legislation refer to the "financially dependent" requirement in paragraph 146(1)(h) which provides that "it shall be assumed, unless the contrary is established, that a dependent was not financially dependent on the annuitant for support at the time of the annuitant's death if the income of the dependent for the taxation year immediately preceding the year in which the annuitant died exceeded the amount used in paragraph 118(1)(c)".

Consequently, the distribution would only be a "refund of premiums" under current legislation or a "designated benefit" under proposed legislation where it can be substantiated that the child was financially dependent on the deceased annuitant at the time of the annuitant's death, that is, where it can be established that the assumption referred to above is invalid.

In respect of your reference to the intention of subparagraph 60(1)(v)(B) of the Act, we would note the specific reference in that subparagraph to "refund of premiums". Revenue Canada does not have the discretionary authority to waive the specific requirements of the legislation. Since recommending changes to existing legislation is the responsibility of the Department of Finance, we have forwarded your concerns to them.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate