12 February 1998 External T.I. E9733075 - INSURED RRSP DEATH OF ANNUITANT

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:

Explanation of law concerning distribution of insured RRSPs on the death of the annuitant.

Position:

The provisions of the Act in this respect have substantially the same rules for all forms of RRSPs

Reasons:

Reasons: Application of the law.

XXXXXXXXXX                                          			973307
                                                      W.C Harding
Attention:XXXXXXXXXX

February 12, 1998

Dear Sirs:

Re: Death of Annuitant
Registered Retirement Savings Plan (“RRSP”)

This is in reply to your letter of December 15, 1997, in which you requested clarification of various provisions of the Income Tax Act (the "Act") on the death of the annuitant of an unmatured, insured RRSP.

The Department’s general positions on this topic can be found in Interpretation Bulletin IT500R a copy of which is enclosed. Subsection 146(8.8) of the Act basically provides that the value of any unmatured RRSP at the time of an RRSP annuitant’s death must be included in the income of the annuitant in the year of death. Subsection 146(8.9) on the other hand, provides that an amount, computed using the formula provided therein, may be deducted from this inclusion in respect of any amount paid out of the RRSP that qualifies as a refund of premiums, (or could have qualified as a refund of premiums if tax-paid amounts were not excluded therefrom).

A “refund of premiums” is defined in subsection 146(1) of the Act and is discussed at length in the above-noted IT Bulletin. Applicable to deaths occurring after 1992, if an annuitant of an unmatured RRSP had a spouse at the time of death, a refund of premiums from the RRSP will be any amount paid to the spouse out of or under the RRSP (other than any part of that amount that is a tax-paid amount in respect of the plan), which is paid as a consequence of the annuitant’s death.

An amount will normally be paid out of an RRSP to a spouse as a consequence of the annuitant’s death where the provisions of the RRSP or the deceased’s will provide for the payment to the spouse on the annuitant’s death. An amount may also be treated as being paid out of an RRSP as a consequence of the annuitant’s death in other situations as discussed in the IT Bulletin.

Tax-paid amounts are defined in subsection 146(1) of the Act and basically mean amounts paid to a person out of an RRSP where the amount is paid in respect of taxable income earned in a trusteed or depository RRSP. Tax-paid amounts do not arise in relation to an insured RRSP. Accordingly, as noted in paragraph 19 of the IT Bulletin, any interest earned on a refund of premiums from an insured RRSP will be treated as part of the refund of premiums.

To illustrate your concerns with this topic, you asked us to consider a situation where an insured, unmatured RRSP has a value of $10,000 at the time of the annuitant’s death and the annuitant’s spouse is named as the beneficiary of the plan. The property of the RRSP is paid out within six months of the date of death and has a value of $10,900 at that time. The additional $900. represents income earned in the plan from the date of death. With respect to this situation you asked: what the results would be if the full amount is paid directly to the spouse or if $8,000 is transferred to the spouse’s RRSP and the balance is paid to the spouse directly.

In each case the total amount paid will be a refund of premiums to the spouse because it is paid out of an insured RRSP and it is paid as a consequence of the spouse being named as the beneficiary of the RRSP on the annuitant’s death. Accordingly, all or a portion of the amount paid (up to $10,000) may be deducted under subsection 146(8.9) of the Act from the amount included in the deceased’s income under subsection 146(8.8) of the Act. The amount deducted plus the $900 income earned by the RRSP will be income of the spouse in the year it is received by the spouse.

All or any portion of a refund of premiums included in the spouse’s income may be transferred as a refund of premiums to the spouse’s RRSP under the provisions of paragraph 60(l) of the Act. Accordingly, in the above example, $900 representing the interest earned by the RRSP may be transferred to the RRSP. Any additional amounts, may however, only be transferred to the extent they are actually deducted from the deceased annuitant’s income under subsection 146(8.9) of the Act. Accordingly, $8,000 may be transferred as a refund of premiums to the spouse’s RRSP only if at least $7,100 is deducted from the annuitant’s income.

With respect to your questions concerning the completion of T4RSPs for the annuitant and spouse in the above example we would ask you to refer to the enclosed 1997 T4RSP and T4RIF guide and in particular, pages 12 and 13 thereof which provide detailed explanations on the completion of T4RSPs.

Yours truly,

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