2005 Ruling 2005-0126621R3 - RRIF - Claim against the estate

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.

Principal Issues: Whether an amount paid to the surviving spouse, pursuant to a claim against the estate, as a dependant spouse who has not been adequately provided for under the deceased's will, is a designated benefit as defined in subsection 146.3(1) of the Act?

Position: Question of fact. If the amount received by the surviving spouse out of the deceased's RRIF is transferred pursuant to a court order issued pursuant to a law of a province providing for the relief or support of dependants, it is the CRA's view that the amount will be a designated benefit as defined in subsection 146.3(1) of the Act.

Reasons: The amount is considered to be paid as a consequence of the annuitant's death.

XXXXXXXXXX 								2005-012662	

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX wherein you requested an advance income tax ruling on behalf of the estate of XXXXXXXXXX (the "Deceased"). We acknowledge the information provided in your e-mail dated XXXXXXXXXX.

In this ruling, the "Act" means the Income Tax Act, RSC 1985 (5th Supp.) c. 1, as amended to the date hereof, and unless otherwise stated, every reference herein to a part, section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Act.

Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows.

Facts

1. The Deceased married XXXXXXXXXX (the "Spouse") on XXXXXXXXXX. The Deceased died on XXXXXXXXXX without having separated from the Spouse. Therefore, at the date of his death, the parties were still married and the Spouse was the spouse of the Deceased.

2. The Deceased named his only children, his XXXXXXXXXX as the executrices (the "Executrices") of the estate in his Last Will and Testament dated, XXXXXXXXXX.

3. The Deceased had a registered retirement income fund (RRIF) more particularly described as a self-directed RRIF account number XXXXXXXXXX administered by XXXXXXXXXX (the "RRIF"). During his lifetime, the Deceased provided that the designated beneficiaries of the RRIF were XXXXXXXXXX, the Executrices.

4. The RRIF was in existence at the time of the Deceased's death.

5. Under Ontario law, the Spouse is a dependant of the Deceased and, therefore, a dependant of the estate. The Spouse is contemplating pursuing formal proceedings for, among other things, a claim for dependant's support from the Deceased's estate pursuant to the Ontario Succession Law Reform Act and for an equalization of net family property under the Ontario Family Law Act.

6. Under Ontario law, the Deceased's RRIF is deemed to be part of his net estate for purposes of ascertaining the value of his estate, and being available to be charged for payment for dependant's support, and would be considered in a calculation and division of net family property.

Proposed Transactions

7. In settling the estate and the claim for dependant's support, it has been agreed by the parties, as set out in the Minutes of Settlement, that a Consent Court Order (the "Court Order") will be issued that provides, inter alia, a portion of the RRIF, namely $XXXXXXXXXX, will be paid to the Spouse (the "Settled Amount") in settlement of the Spouse's claims under the Succession Law Reform Act and the Family Law Act for, among other things, interim dependants support, permanent lump sum and/or periodic dependants support, and/or the transfer of property to the Spouse for her support, recovery of expenses and/or payment of arrears under a marriage contract between the Deceased and the Spouse, a trial of issues with respect to whether such marriage contract should be set aside and various orders with respect to an equalization of the net family properties of the Deceased and the Spouse. No final settlement of the Spouse's claims and no transfer of any part of the RRIF to the Spouse will occur without a Court Order.

8. The Spouse will invest the Settled Amount in her own RRIF, forthwith upon receipt of the funds from the Executrices.

9. It is contemplated that the Settled Amount will be transferred in accordance with paragraph 60(l) of the Act from the Deceased's RRIF to a RRIF in the Spouse's name.

Purpose of the Proposed Transactions

10. It is the intention of the parties that the Deceased and the estate of the Deceased shall incur no taxes for the Settled Amount. The funds remaining in the Deceased's RRIF after the Settled Amount has been transferred to the Spouse will become the property of the Executrices pursuant to the beneficiary designation, and will be taxed on the Deceased's terminal return in accordance with the provisions of the Act that apply upon death of the last annuitant of a RRIF.

We understand that, to the best of your knowledge and that of the Executrices, none of the issues involved in the ruling request is:

i) in an earlier return of the Deceased or a related person;

ii) being considered by a tax services office or tax centre in connection with a previously filed tax return of the Deceased or a related person;

iii) under objection by the Deceased or a related person;

iv) before the courts, or if a judgment has been issued, the time limit for appeal to a higher court has expired; or

v) the subject of a ruling previously issued to the Deceased or a related person.

Ruling

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are as described above, we rule as follows:

A. Provided the legal representative of the Deceased and the Spouse jointly designate in prescribed form with the Minister in accordance with the definition of "designated benefit" in subsection 146.3(1) of the Act, the Settled Amount, described in 7 above, will be a designated benefit for purposes of calculating the deduction under subsection 146.3(6.2) of the Act.

The above ruling, which is based on the Act in its present form and does not take into account any proposed amendments thereto, is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and is binding on the Canada Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch