15 October 1999 External T.I. 9921255 - RRSP REFUND OF PREMIUMS

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: Does a grandchild have to actually be supported by the deceased, or will he be considered financially dependent if his income is below the threshold?

Position: Must be supported.

Reasons: Wording of "refund of premiums" in 146(1).

XXXXXXXXXX 992125
S. E. Thomson
Attention: XXXXXXXXXX

October 15, 1999

Dear XXXXXXXXXX:

Re: Refund of Premiums - Financially Dependent Grandchild

This is in reply to your letter of July 28, 1999 in which you ask for our comments on a fact situation involving a taxpayer who has provided for a bequest for minor grandchildren to be held in trust, with the amounts funded from the deceased's registered retirement savings plan ("RRSP").

Where the particular transactions are ongoing or completed and involve specific taxpayers, the enquiry should be addressed to the local tax services office. However, we are prepared to offer the following general comments on refund of premiums from RRSPs which comments are not binding on the Department.

In your letter, you ask if it is necessary to show that the grandchild is financially dependent on the annuitant immediately prior to the annuitant's death, or is the provision administratively governed in a fashion consistent with the description contained in Form T1090 titled "Death of a RRIF Annuitant - Designated Benefit". The opening words of the form indicate that the beneficiary is considered "financially dependent if, in the year before the year in which the annuitant died, the beneficiary's net income ... is equal to or less than the basic amount...". The relevant form for a refund of premiums under an RRSP is Form T2019, although the wording on that form is similar to the wording as outlined above.

Paragraph (b) of the definition of "refund of premiums" in subsection 146(1) of the Income Tax Act (the "Act") provides that an amount will be a refund of premiums where it is paid out of an RRSP to a child or grandchild (hereinafter referred to as "grandchild") who was, at the time of death of the annuitant, financially dependent on the annuitant for support. The postamble to the definition further provides a rebuttable presumption that the grandchild will not be financially dependent where his or her income exceeds a certain amount. In our opinion, the requirements of paragraph (b) must be met before the presumption in the postamble is relevant.

The phrase "financially dependent on the annuitant for support" means that the grandchild must be financially dependent on the deceased annuitant for support at the time of the annuitant's death. The traditional or usual gifts at Christmas and birthdays 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 the grandchild was financially dependent on a deceased annuitant for support:

a) the income of the grandchild from all sources;

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

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

Where the grandchild is living with another individual who is providing support for him/her at the time of the annuitant's death, the grandchild would not be considered to be financially dependent upon the deceased for support at that time.

Your letter states that the taxpayer provides for a bequest for minor grandchildren to be held in trust, with the amounts funded from the deceased's RRSP. We refer you to paragraph 11 of Information Bulletin IT-500R "Registered Retirement Savings Plan - Death of an Annuitant" which says that all the terms and conditions of the trust (estate) must be considered to determine whether the amount can be jointly designated under subsection 146(8.1) of the Act as a refund of premiums. Further, paragraph 60(l) of the Act provides a deduction to the grandchild if the refund of premiums are used to purchase an annuity to age 18. Please see paragraph 27 of IT-500R for more information.

We trust that the above comments have been helpful.

Yours truly,

P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate