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:
Are proceeds out of or under a RRSP or RRIF subject to withholding tax in the situation where the estate is the beneficiary under the plan and the spouse of the deceased is the beneficiary of the estate.
Position TAKEN:
If the payment out of the RRSP or RRIF is transferred directly to a RRSP of the deceased spouse, the payment will not generally be subject to withholding. If the payment out of the RRSP goes to the estate first and then to a RRSP of the spouse, the payment out of the RRSP will be subject to withholding.
Reasons FOR POSITION TAKEN:
The exceptions in paragraphs 212(1)(l) and 212(1)(q) of the Act can only be satisfied where the payment out of or under the RRSP or RRIF are made directly to another RRSP, a RRIF or are used to purchase an annuity where the spouse is the annuitant. The exceptions do not apply where the payments are made to the estate of the deceased.
942676
XXXXXXXXXX A. Seidel
Attention: XXXXXXXXXX
May 2, 1995
Dear Sirs:
This is in reply to your letter dated October 5, 1994 in which you requested an interpretation of the provisions of subsection 146(8.1) and paragraph 212(1)(l) of the Income Tax Act (the "Act").
In the situation where an annuitant of an unmatured registered retirement savings plan ("RRSP") dies and the estate is named as the beneficiary under the RRSP and the spouse of the deceased is named as the beneficiary of the estate, subsection 146(8.1) of the Act allows the spouse and the legal representative of the estate to file an election in prescribed form deeming the proceeds of the RRSP to be a benefit received by the beneficiary of the estate as a refund of premiums. This election is available to both resident and non-resident beneficiaries and must be made in prescribed form.
Where the election under subsection 146(8.1) of the Act is filed by a non-resident, paragraph 214(3)(c) of the Act deems the amount in respect of which a valid election has been filed to be a payment under a RRSP.
Paragraph 212(1)(l) of the Act imposes a withholding tax on a payment to a non-resident out of or under a RRSP unless it has been transferred directly by the payer to a RRSP under which the spouse is the annuitant, it has been used to acquire an annuity under which the spouse is the annuitant, or it has been used to acquire a registered retirement income fund ("RRIF") under which the spouse is the annuitant and subparagraph 212(1)(l)(ii) of the Act applies to the payment.
In the situation where the last annuitant of an unmatured RRIF dies and the spouse is named as the beneficiary of the deceased's estate, subsection 146.3(6.1) of the Act deems a "designated benefit" of the spouse that is received by the legal representative of the deceased to have been received by the spouse out of the RRIF. The term "designated benefit" is defined in subsection 146.3(1) of the Act to include amounts paid out of the RRIF to the legal representative of the deceased annuitant in respect of which the spouse and the legal representative have jointly designated in prescribed form.
Any amounts received by a non-resident out of or under a RRIF will be subject to withholding tax pursuant to paragraph 212(1)(q) of the Act unless the amounts are transferred directly by the payer to a RRSP, RRIF or are used to acquire an annuity under which the non-resident is the annuitant and subparagraph 212(1)(q)(ii) of the Act applies to the amounts received.
Pursuant to subsection 146.3(6) of the Act, where the last annuitant under a RRIF dies, that annuitant is deemed to have received, immediately before death, an amount out of or under a RRIF equal to the fair market value of the property of the fund at the time of death. In the situation where the last annuitant is a non-resident, the amount deemed to have been received will be subject to withholding tax pursuant to the provisions of paragraph 212(1)(q) of the Act.
The exceptions in paragraphs 212(1)(l) and (q) of the Act can only be satisfied where the payment out of the RRSP or RRIF is made directly to another RRSP, a RRIF or is used to purchase an annuity whereas subsections 146(8.1) and 146.3(6.1) can only apply where an amount has been paid to the legal representative of the deceased annuitant, ie. the deceased's estate. Accordingly, any amounts that are deemed to be received by the beneficiary of the deceased's estate pursuant to subsections 146(8.1) or 146.3(6.1) of the Act will not generally be amounts that have been transferred directly to a RRSP, RRIF or used to purchase an annuity and therefore will normally be subject to withholding tax under either of paragraphs 212(1)(l) or (q) of the Act.
However, in the situation where the legal representative and the spouse, as beneficiary of the deceased's estate, jointly direct that the amount that would otherwise be paid to the estate out of or under the deceased's RRSP or RRIF, as the case may be, be transferred by the payer directly to a RRSP, RRIF or be used to acquire an annuity under which the spouse of the deceased is the annuitant, the Department would normally accept that such amount has been paid to the deceased's legal representative for purposes of subsections 146(8.1) and 146.3(6.1) of the Act. Consequently, provided that the deceased's legal representative and spouse have jointly designated in prescribed form with respect to any such amount, the spouse will be deemed to have received the amount in the year as a refund of premiums in the case of an RRSP or as an amount out of an RRIF and further provided that the requirements of subparagraph 212(1)(l)(ii) or 212(1)(q)(ii), as the case may be, are satisfied, the amount so transferred would not be subject to withholding tax.
These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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