20 August 1998 External T.I. 9813655 - DESIGNATED BENEFICIARY, SPOUSE, CHILD

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:

1. Can a child claim a designated benefit where the RRIF annuitant has a common law spouse that is not the parent of the child?

2. Are non-taxable social payments included in determining financial dependence?

Position:

1. No

2. Not if excluded from net income.

Reasons:

1. Cannot have a designated benefit if annuitant has a spouse at the time of death.

2. See form T1090 where determination of financial dependence explained.

XXXXXXXXXX 981365
M. P. Sarazin

Attention: XXXXXXXXXX

August 20, 1998

Dear Sirs:

Re: Designated Benefit out of Registered Retirement Income Fund

This is in reply to your letter dated May 21, 1998, wherein you requested clarification regarding the taxation of amounts held in a registered retirement income fund (“RRIF”) as a result of the death of the annuitant of the RRIF.

Your letter relates to particular individuals and, as such, we are unable to confirm the tax consequences except in the context of an advance income tax ruling. We can, however, provide the Department’s views regarding the following general questions.

Question #1

You are aware that paragraph 60(l) of the Income Tax Act (the “Act”) does not apply in respect of RRIF amounts left to a qualifying beneficiary who is a financially dependent child or grandchild where the deceased RRIF annuitant is survived by a spouse. You are also aware that, under the provisions of subsection 252(4) of the Act, the extended meaning of the word spouse includes a common law spouse. Would paragraph 60(l) apply in respect of amounts left to the deceased annuitant’s financially dependent child or grandchild in the situation where the common law spouse is not the natural or adoptive parent of the child?

Comments

As stated on page 18 of the guide titled “RRSPs and Other Registered Plans for Retirement 97” and in the opening comments provided on form T1090(E) titled “Death of a RRIF Annuitant - Designated Benefit” (the “Form”), the financially dependent child or grandchild can only receive a designated benefit, within the meaning assigned by subsection 146.3(1) of the Act, if the RRIF annuitant had no spouse at the time of his death. Whether the spouse is or is not the natural or adoptive parent of the financially dependent child or grandchild is irrelevant for the purposes of determining the amount that would qualify as a designated benefit.

Question #2

Would the Department include non-taxable social assistance payments in the child or grandchild’s income in determining whether the child or grandchild is financially dependent on the RRIF annuitant?

Comments

In respect of the determination of financial dependence, the opening comments provided on the Form states:

“We consider you financially dependent if, in the year before the year in which the annuitant died, your net income (line 236 of your return) is equal to or less than the basic amount beside line 300 of the same return (for 1994 and 1995 this amount is $6,456). If your net income is more than the amount on line 300, we do not consider you financially dependent unless you can establish the contrary. In such a case, you or your legal representative should submit a request in writing to your tax services office outlining the reasons why we should consider you financially dependent on the annuitant at the time of death.”

These comments reflect the definition of “refund of premiums” within subsection 146(1) of the Act and they are consistent with the comments provided in paragraph 18 of Interpretation Bulletin IT-500R titled “Registered Retirement Savings Plans - Death of an Annuitant”.

The inclusion or exclusion of the non-taxable social assistance received by a child or grandchild will depend on whether the amount received is included in the child or grandchild’s net income. We note that social assistance payments are generally included in the recipient’s income on line 145 of his or her income tax and benefit return and an offsetting deduction can be claimed on line 250 of the return. You may refer to the General Income Tax Guide to determine whether certain amounts have to be included in the recipient’s income.

Question #3

Where the beneficiary is a developmentally handicapped person, who can sign the Form on behalf of the beneficiary and what proof does the Department require to substantiate that the person is authorized to sign on behalf of the beneficiary?

Comments

The beneficiary is required to sign Area II of the Form. Whether a beneficiary is mentally incompetent and legally entitled to sign on his or her own behalf is a question of fact. You may wish to contact the relevant tax services office in order to determine the documentary evidence that they would require to allow the legal representative to sign on behalf of the beneficiary.

Question #4

Would paragraph 60(l) of the Act apply where the annuitant names a discretionary trust for the benefit of a developmentally handicapped child of the annuitant as beneficiary of the RRIF property on the annuitant’s death?

Comments

Subsection 146.3(6.11) refers specifically to a “child or grandchild of the annuitant”. Consequently, amounts left to a discretionary trust will not qualify as a designated benefit for purposes of the rollover under paragraph 60(l) of the Act.

Question #5

You state that the literal interpretation of the Act results in a gross inequity when a RRIF annuitant dies with a common law spouse and a financially dependent and developmentally handicapped child. The Department’s strict interpretation of the law does not permit the annuitant to use his or her RRIF property to provide for the future financial well-being of the person who has the greatest need. Would the Department consider allowing the RRIF property left to the financially dependent and developmentally handicapped child to qualify as a designated benefit?

Comments

Revenue Canada does not have the discretionary authority to waive specific requirements of the Act. Consequently, where a RRIF annuitant has a spouse at the time of his or her death, the annuitant’s legal representative and his or her financially dependent child or grandchild will not be entitled to designate an amount as a designated benefit. If you believe that this result is contrary to general tax policy, you should direct your concerns to the Department of Finance which is responsible for amending the provisions of the Act.

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

Yours truly,

Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate