9 January 1996 External T.I. 9517185 - DEATH, RRSP MATURITY, SPOUSE

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:

reporting requirements where annuitant dies before rrsp maturity?

Position:

spouse becomes annuitant

Reasons:

Withdrawals included in spouse's income.

									951718
XXXXXXXXXX							M.P. Sarazin

Attention: XXXXXXXXXX

January 9, 1996

Dear Sirs:

Re: RRSP Refund of Premiums on Death

This is in reply to your letter dated June 22, 1995, in which you requested clarification regarding the reporting requirements in the situation where an annuitant dies prior to the maturity of a registered retirement savings plan ("RRSP"), the deceased annuitant's spouse is the beneficiary under the plan and the estate of the deceased annuitant does not settle for a few years. We will present our comments in the context of the following example.

An annuitant under an RRSP dies in April of Year 1 and the annuitant's spouse is the sole beneficiary of the RRSP. The RRSP property is paid out to the surviving spouse on December 31 of Year 4.

Our Comments

Generally, in the situation where an annuitant dies before the maturity of an RRSP and the annuitant's surviving spouse is the beneficiary, the legal representative of the deceased and the surviving spouse will have the option of including the fair market value of the RRSP at the date of death in the deceased's income in the year of death, or of including it in the income of the surviving spouse in the year of receipt.

Where an annuitant under an RRSP dies before its maturity, the provisions of subsection 146(8.8) of the Income Tax Act (the "Act") deem the deceased annuitant to have received, immediately before death, an amount as a benefit out of or under an RRSP equal to the fair market value of all of the property of the plan at the time of death. Subsection 214(4) of the Income Tax Regulations (the "Regulations") requires the issuer of a plan to make an information return where subsection 146(8.8) of the Act deems an annuitant to receive a benefit and such amount is included in the deceased annuitant's income under subsection 146(8) of the Act. However, we would refer you to Chapter 10 of the 1994 T4RSP and T4RIF Guide wherein it states that a T4RSP Supplementary slip does not have to be issued to a deceased annuitant if:

(a) the surviving spouse is named in the RRSP contract as beneficiary of all the RRSP property;

(b) the plan administrator is making a direct transfer of the entire RRSP refund of premiums under paragraph 60(l) to the spouse's RRSP, RRIF, or to an issuer to buy an eligible annuity; and

(c) the plan administrator completes the transfer before December 31 of the year following the year of death.

Since the conditions have not been satisfied in the above example, a T4RSP Supplementary slip with an amount equal to the fair market value of the property held in the plan shown in box 34 would have to be issued in Year 1 to the deceased annuitant. However, after December 31 of Year 4, the surviving spouse could contact the appropriate Tax Services Office to request that the deceased annuitant's terminal return be amended to allow a deduction under subsection 146(8.9) of the Act with respect to the fair market value of the property held in the plan and included in the deceased annuitant's terminal return. The fair market value of the property on death could be treated as both a benefit and a refund of premiums to the spouse which could be transferred pursuant to paragraph 60(l) of the Act.

The income earned in the RRSP after the annuitant's death to the end of the year following the year of death (the "Exempt Period") will be both a benefit and a refund of premiums to the surviving spouse, and should be reported in box 18 of the T4RSP issued to the spouse for Year 4.

With respect to deaths occurring after 1992, the income earned in a trusteed RRSP after the Exempt Period will be taxed in the RRSP unless it is paid out of the trust in the year. In this regard, we would refer you to the Amendments to the Income Tax Act and Related Statutes: Draft Legislation and Explanatory Notes issued by the Minister of Finance in April 1995 (the "Amendments") wherein paragraph 104(6)(a.2) is added to provide that, once a trust governed by an RRSP is no longer exempt from tax after the death of the annuitant, only trust income actually paid to a beneficiary in a year is deductible in computing the RRSP trust's income.

The Amendments also add the definition "tax-paid amount" to subsection 146(1) of the Act and amend the definition of "refund of premiums" to exclude a "tax-paid amount" in respect of the RRSP. A "tax-paid amount" paid to a person in respect of an RRSP is, in the case of a trusteed RRSP, an amount paid to the person in respect of the trust's income that is not exempt from tax under Part I of the Act because of paragraph 146(4)(c) of the Act. In the case of an RRSP that is a deposit, a "tax-paid amount" paid to the person in respect of the RRSP is an amount paid in respect of RRSP income that accrued or was credited after the Exempt Period.

For the purposes of determining the amount A in the formula described in subsection 146(8.9) of the Act, we would again refer you to the proposed revisions to subsection 146(8.9) of the Act described in the Amendments. The amount A in the formula includes both refund of premiums and tax-paid amounts and, as a result, in your example the amount of the deduction under subsection 146(8.9) of the Act should equal the deemed benefit under subsection 146(8.8) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch