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:
The incoming letter raised concerns with Department statements on when an amount will be a refund of premiums with specific reference to the payment of amounts to a grandchild of the annuitant of an RRSP where the grandfather provides some financial support for the child but the child lived with the child's parents and is primarily dependent on them.
Position:
Generally explained each situation must be considered on its own through the local TSO. We also noted that the Department publications were of general application and have also been amended to clarify comments in light of changes to the legislation since they were originally written.
Reasons:
The writer wanted to apply general positions to unusual specific and unusual situation. It is the Departments policy that these situations be reviewed on a case by case base through the TSOs.
XXXXXXXXXX 970720
Attention: XXXXXXXXXX
May 28, 1997
Dear Sirs:
Re: Paragraph 60(l) of the Income Tax Act (the "Act")
This is in reply to your letter of March 13, 1997 in which you requested clarification of when a child would be considered financially dependent on the annuitant of a Registered Retirement Income Fund (RRIF). We will respond to your comments in the order raised.
The wording in the definition of "refund of premiums" in subsection 146(1) of the Act states:
"... it is assumed unless the contrary is established, that a dependant was not financially dependent on the annuitant for support at the time of the annuitant's death if the income of the dependant for the taxation year preceding the taxation year in which the annuitant died exceeded the amount used under paragraph (c) of the description of B in subsection 118(1) for that preceding year"
Does this mean that a grandchild will be considered financially dependent if they have no income for the year preceding the taxation year in which the annuitant died?
Our Reply
No it does not. It clarifies that a dependant will not be considered financially depended if the dependant's income exceeds the specified limit unless a contrary position is established. Generally, it would seem reasonable to assume a dependant of an annuitant, who had no income would be financially dependent on the annuitant. However, it is of importance to note that the child must first be a dependant of the annuitant before paragraph (b) of the definition of a refund of premiums can apply.
You provide an example of a child with no income, living with the child's parents where a grandfather contributes to the support of the child. In this comment you then state:
"Revenue Canada's RRSP & Other Registered Plans for Retirement Guide (T4040) contains a glossary which defines the term "financially dependent" which states:
"... you are considered financially dependent on the annuitant at the time of death if your income is $6,456 or less."
Based on these comments, the grandchild is dependent on her grandfather."
Our Reply
We are not sure which year's guide you are referring to although it appears to be the 1995 guide. As you are aware these guides attempt to provide general information in respect of common income tax situations in plain language. They do not try to express the law in precise terms. The paragraph you refer to was directed toward situations where children were dependants of the annuitant of an RRSP, the most common situation. It was not addressed to situations where a child was dependant on one of the child's parents where the parent was not the annuitant of the RRSP. However, to clarify the provision, the first paragraph of this explanation was revised when it was published in the glossary of the 1996 guide. It now reads as follows:
"Financially dependent - for 1996, you are generally considered financially dependent on a deceased annuitant at the time of death if, prior to death, you ordinarily resided with and depended on the annuitant, and your net income (shown on line 236 of your return) for 1995 was $6,456 or less. If prior to death, you lived away from home because you were attending school, we consider you to have resided with the annuitant."
It should be noted that while this new comment clarifies the situation it again attempts to address the most common situations. Accordingly, it should not be presumed that a child who is away from home and at school can claim to be dependant on an annuitant where the child would not otherwise ordinarily reside with and depend on the annuitant.
Under this comment you note that the wording of paragraph 18 of the Department's Interpretation Bulletin IT-500R, dated December 18, 1996, has changed from that found in IT-500 dated December 7, 1983.
Our Reply
The paragraph was changed to reflect the changes in the definition of a refund of premiums that have occurred since IT-500 was released in 1983. In one respect, which seems to be relevant to your example, the law previously assumed a child was not financially dependent on an annuitant of an RRSP where someone other than the annuitant claimed a personal deduction in respect of the child. This part of the assumption was removed from the definition with effect from 1993 because there has been no credit available for dependent children since 1992. However, the wording of paragraph (b) of the definition still requires a child to be financially dependent on the annuitant at the time of the annuitant's death.
As you are aware whether a child was dependent on an annuitant of an RRSP at any particular time is a question of fact on which this Directorate can not comment. However, an opinion in respect of a factual situation may be provided by the Department if a written request is submitted by the child, or the child's legal representative, to the child's local Tax Services Office. The request should provide all relevant details as well as an explanation of why you think the Department should consider the child was financially dependent on the annuitant at the time of the annuitant's death.
We trust these comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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