8 May 1996 External T.I. 9613795 - DESIGNATED BENEFIT OUT OF RRIF

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:

General discussion of taxation consequences on death of RRIF annuitant where beneficiaries are the children and grandchildren.

Position: N/A

Reasons: N/A

									961379
XXXXXXXXXX							P. Spice

May 8, 1996

Dear XXXXXXXXXX:

Re: "Designated Benefit" Out of a Registered Retirement Income Fund ("RRIF")

This is in reply to your facsimile transmission of April 19, 1996, in which you ask us to confirm the tax consequences upon the death of an annuitant of a RRIF.

Your query relates to particular individuals and we are unable to confirm the tax consequences except in the context an advance income tax ruling. We can, however, provide the following general comments concerning the relevant RRIF provisions under the Income Tax Act (the "Act").

Upon the death of the last annuitant of a RRIF, subsection 146.3(6) of the Act deems the annuitant to have received immediately before death an amount out of the RRIF equal to the fair market value of the property at the time of death. This amount is included in the deceased annuitant's income for the year of death pursuant to paragraph 56(1)(t) of the Act.

Subsection 146.3(6.2) permits a deduction from the deceased annuitant's income for the year of death of an amount not exceeding a specific percentage of the total "designated benefits" in respect of the RRIF. (Note that any amounts earned in a RRIF trust in years that begin after the end of the first calendar year after the year of death are not included in either the deceased annuitant's nor the eventual recipient's hands. Rather such earnings are taxed in the RRIF trust and do not form part of the specified percentage of "designated benefits".)

A "designated benefit" of an individual is defined in subsection 146.3(1) of the Act to mean the total of amounts paid out of or under the RRIF after the last annuitant's death to the individual that would be "refunds of premiums" had the fund been an unmatured registered retirement savings plan ("RRSP").

A "refund of premiums" is defined in subsection 146(1) of the Act to mean, where the annuitant has no spouse at the time of death, a payment to a child or grandchild (hereafter referred to as "child") of the last annuitant who was financially dependent on the annuitant for support at the time of the death. For this purpose, it is assumed that, unless the contrary is established, a child was not financially dependent on the annuitant at the time of the annuitant's death if the income of that child for the taxation year preceding the year of death exceeded the basic personal credit in subsection 118(1) of the Act ($6456 for 1995). (To establish the contrary, the child or the child's legal representative may write to the tax services office outlining the reasons why the child should be considered financially dependent on the annuitant at the time of death.)

In a situation where there is no spouse and the property in a RRIF of a deceased annuitant is to be divided among 2 or more children (including grandchildren) of the annuitant, it is possible that a "designated benefit" could exist in relation to the portion to be paid to one child or grandchild who was financially dependent on the annuitant at the time of death, but not with respect to the portion to be paid to another who was not so financially dependent.

Amounts that are "designated benefits" are taxable to the recipient in accordance with subsection 146.3(5) and paragraph 56(1)(t) of the Act.

If the child or grandchild was dependent on the last annuitant because of a physical or mental infirmity, the "designated benefit" is also an "eligible amount" pursuant to subsection 146.3(6.11) of the Act. A deduction from income is available to the recipient in accordance with paragraph 60(l) of the Act in an amount not exceeding the eligible amount used by the recipient to acquire an annuity as described in subparagraph 60(l)(ii) of the Act, paid as a premium under the recipient's RRSP or as consideration for the recipient's RRIF.

There is an additional deduction available to a child or grandchild under 18 years of age who receives a "designated benefit" but is not dependent by reason of physical or mental infirmity. The details of this deduction are not relevant to this discussion.

We trust these comments will be of assistance. To help calculate the amount by which the deceased annuitant's income can be reduced and for a discussion of the tax-free transfer options, please write or phone your local tax services office to request a copy of Form T1090 (Death of a RRIF Annuitant - Designated Benefit) as follows:

		Toronto Centre Tax Services
		36 Adelaide Street East
		Toronto, Ontario
		M5C 1J7
		Telephone (416) 865-9469
		Facsimile (416) 954-8118

Yours truly,

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

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