2 January 1997 Internal T.I. 9640837 - REFUND OF PREMIUMS GRANDCHILD SUPPORT 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: Refund of premiums - Meaning of financial support

Position: Question of fact

Reasons: Routine

			January 2, 1997

	REGINA TAX SERVICES OFFICE	HEADQUARTERS
	Alan Kellet	Franklyn S. Gillman
	Director	(613) 957-8953
	Attention: Brenda McEachern
			7-964083

XXXXXXXXXX

This is in reply to your memorandum of December 10, 1996 wherein you requested that we review and comment as to whether the grandchildren of the above deceased qualify to receive a designated benefit in respect of the registered retirement income fund (the "RRIF") of the deceased.

Facts

You supplied us with the following facts:

XXXXXXXXXX

XXXXXXXXXX

The Executor explained that since XXXXXXXXXX had renounced his right to the RRIFs as well as to all the bequeaths to him in the Will, that under the terms of the Will the Estate assets are bequeathed to the XXXXXXXXXX grandchildren in equal amounts.

The Executor upon filing the terminal income tax return brought the value of the XXXXXXXXXX RRIFs into income pursuant to subsection 146.3(6) of the Income Tax Act (the "Act"), but also took a deduction of the same amount pursuant to subsection 146.3(6.2) of the Act. The deduction was taken as the amount was claimed to be a designated benefit to the XXXXXXXXXX grandchildren. An election was filed for each grandchild on form T1090.

The Executor has taken this approach on the grounds that the XXXXXXXXXX grandchildren were financially dependent upon the deceased. He had pointed out in correspondence to you dated November 30, 1996 the following:

XXXXXXXXXX.

Comments

An amount paid directly from a RRIF to a grandchild after the last annuitant's death is a "designated benefit" pursuant to the definition assigned to that phrase at subsection 146.3(1) of the Act to the extent it would be a "refund of premiums" had the RRIF been a registered retirement savings plan ("RRSP") that had not matured before the death. A "refund of premiums" is defined at subsection 146(1) of the Act to mean inter alia if the annuitant had no spouse at the time of death an amount paid out of or under a RRSP after the death to a child or grandchild of the annuitant who was, at the time of the death, financially dependent on the annuitant for support.

The phrase "financially dependent on the annuitant for support" means that the child or the grandchild as the case may be, must be financially dependent on the deceased annuitant for support at the time of the annuitants death. Gifts and contributions to a Registered Education Savings Plan do not constitute support where they merely enhance or supplement the already adequate life style of the grandchild. The question of financial dependency is a question of fact which must be determined on the facts of each case. The following factors may be considered in determining if a person was financially dependant on a deceased annuitant for support:

a) the income of the person from all sources;

b) the cost of living and the ability of the person to provide for self-support; and

c) any support provided to the person by other persons.

It will be assumed unless the contrary is established that a child or grandchild who is supported by the deceased may be considered financially dependent upon the deceased for support at the time of death if the child/grandchild's income in the year preceding the death of the deceased was less than the basic personal credit in subsection 118(1) of the Act ($6456 for 1994). However this is only possible where the child/grandchild was at the time of the death financially dependent upon the deceased for support. Where the child/grandchild is living with another individual who is providing support for him/her at the time of death, the child/grandchild would not be considered to be financially dependent upon the deceased for support at that time.

The Department has stated the following in IT-500 at paragraph 18 with reference to "refund of premiums":

"... it is assumed that, unless the contrary is established, a child or grandchild is not financially dependent on the annuitant for support at the annuitant's death if any person other than the annuitant was permitted a dependent deduction under paragraph 109(1)(d) (presently 118(1)(d)) in respect of the child or grandchild for the year preceding the year of death ..."

You informed us during a telephone conversation (Gillman/McEachern) that XXXXXXXXXX has claimed the XXXXXXXXXX children as dependants on his income tax return for 1995.

It is therefore our opinion, based on the facts provided that the XXXXXXXXXX grandchildren were not financially dependent upon the deceased at the time of his death and are not able to receive the RRIF assets as a designated benefit as that term is defined at subsection 146.3(1) of the Act.

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