29 March 1994 External T.I. 9406495 - CHILD'S RECEIPT OF RRSP & RPP LUMP SUMS 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.

Principal Issues:

Taxation of pension lump sum and RRSP property on death of RPP member/RRSP annuitant.

Position TAKEN:

General Info - provided relevant Guides.

Reasons FOR POSITION TAKEN:

N/A

XXXXXXXXXX 940649

March 29, 1994

Dear Sir:

This is in reply to your letter to the Toronto District Office which was forwarded to us for reply, and further to our telephone conversation (Spice/XXXXXXXXXX) of March 23, 1994. You asked us to confirm the tax consequences to you and your deceased father's estate on the transfer of lump sum amounts out of your father's registered retirement savings plan (RRSP) and registered pension plan (RPP).

Written confirmation concerning the tax implications of past transactions should be provided by the district taxation office. We are unable to provide an advance income tax ruling because the transactions affecting your father's estate and your tax situation are completed. We can provide the following general information, however.

When the annuitant of a registered retirement savings plan dies, the full value of the property in the RRSP is brought into the income of the annuitant in the year of death, unless the beneficiary of the RRSP is a spouse, or where there is no spouse, a child of the annuitant who was financially dependent on the annuitant for support at the time of the annuitant's death. In the latter cases, the value of the RRSP property that is transferred to the spouse or child is excluded from the deceased's income and is taxed in the hands of the spouse or child. The spouse or child may be entitled to defer income tax on the property received out of the RRSP. Please refer to pages 41 to 43 of the enclosed 1993 RRSP and Other Registered Plans for Retirement Guide for further information on the deferral of tax by a child in these circumstances.

A lump sum out of an RPP on the death of the member is not taxable to the deceased but rather to the person who receives it. Please refer to the enclosed 1993 Preparing Returns for Deceased Persons Guide, page 8 concerning Lines 113 to 115. If the pension plan administrator pays it to a child as the member's beneficiary, the amount will be shown on a T4A slip and the full amount will be taxable in the child's hands in the year of receipt. A child who is under 18 at the time of the member's death may defer tax on the receipt of the lump sum by purchasing an eligible annuity for a term of years equal to 18 minus the child's age at the time of the purchase.

If the pension plan administrator pays the amount to the estate, it may be paid or payable to a child as a beneficiary of the estate. The amount would be shown on a T3 slip and the amount will be taxable in the child's hands in the year of receipt. The estate may designate the amount for purposes of the tax deferral mentioned in the previous paragraph if the child is under 18 year of age. No part of the lump sum payment will be taxable in the estate if it is allocated to beneficiaries of the estate in accordance with the will, and the estate claims the appropriate deduction for such allocation on the T3 return. For further information concerning the allocation by the estate and the designation for purposes of purchasing the eligible annuity for a child under 18, please refer to the enclosed 1993 T3 Guide and Trust Return, in particular Guide Items for Line 02, Line 47, Trust Schedule 7 (pages 38-39), and Trust Schedule 9 (reference to Allocations or Designations on pages 40-41, reference to Part A, Lines 921 to 927 on page 43, and to Part A, Lines 926 and 936 on page 46).

Although the foregoing comments are not binding on the Department, we trust they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate