9 June 1998 Internal T.I. 9812576 - 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:

Will subsection 146(8.8) apply where the annuitant died before June 30, 1978?

Position: No

Reasons: The provision clearly only applies to deaths after June 29, 1978.

		June 9, 1998

	HEADQUARTERS	HEADQUARTERS
	Monique Paquin	M.P. Sarazin
	Acting Manager	952-9853
	Individual Programs Section

	Attention: Rick Owen
		981257

1998 Distribution by RRSP where Annuitant Died in 1977

We are writing to you in respect of your memorandum dated May 13, 1998, wherein you requested our views regarding the application of the Income Tax Act (the “Act”) to a proposed distribution from a registered retirement savings plan (“RRSP”) where the annuitant died in 1977.

The relevant facts are as follows:

1. A taxpayer was the annuitant of an interest-bearing RRSP set up with the XXXXXXXXXX (“Trustco”) in 1973. Under the RRSP contract, the taxpayer’s estate was named as the beneficiary in the case of death.

2. The taxpayer died on XXXXXXXXXX, 1977 and Trustco was not notified of the death until October 1997.

3. Since the taxpayer would have turned 71 in 1994 and Trustco could not contact the taxpayer, Trustco converted the RRSP to a registered retirement income fund (“RRIF”).

4. Trustco opened an account for the taxpayer and the minimum payments required under the RRIF contract were deposited into the account. The T4RIF supplementary slips were issued by Trustco for 1995 and 1996. However, these supplementary slips were returned to Trustco because the taxpayer could not be located.

Your Concern

You are of the view that the RRSP trust could not be converted to a RRIF trust because there was no arrangement between the carrier and annuitant. You are concerned that the trust would still constitute an RRSP trust and that subsection 146(8.8) of the Act, which became effective June 30, 1978, may have applied in cases where the annuitant died before June 30, 1978. If subsection 148(8.8) did apply where the death of the annuitant occurred before June 30, 1978 then the fair market value of the property held in the RRSP at the time of the annuitant’s death should have been included in the annuitant’s income at that time and the RRSP would cease to qualify as an RRSP. Consequently, the amount ultimately paid out of the RRSP would escape taxation because it would not fall under subsection 146(8) of the Act.

Comments

We concur with your view that the RRSP trust could not be converted into a RRIF trust because there is no arrangement between a carrier and annuitant. As such, the property would still be held by Trustco in a trust which would still be considered the original RRSP trust.

In determining whether subsection 146(8.8) should have applied as a result of the annuitant’s death, we reviewed our policy records relating to subsection 146(8.8) of the Act and found a document XXXXXXXXXX.

Consequently, in our view, the provisions of subsection 146(8.8) do not apply in the above situation because the annuitant died before June 30, 1978.

It is clear that an RRSP trust continues to exist after the death of the annuitant otherwise there would be no need for the enactment of paragraph 146(4)(c) of the Act.

XXXXXXXXXX

Under subsection 146(8) of the Act, the recipient of benefits out of an RRSP will be taxed in the year received. A benefit is defined in subsection 146(1) of the Act to be any amount received out of an RRSP other than amounts distributed from the RRSP that have generally been previously taxed in the hands of the annuitant or the RRSP trust or amounts that were taxable in the RRSP trust under paragraph 146(4)(c) of the Act. In computing its income the trust can deduct, pursuant to paragraph 104(6)(b) of the Act, amounts that would otherwise be its income that became payable to a beneficiary. If paragraph 104(6)(b) did not apply, which is likely the case in this scenario, then the RRSP trust should be assessed under 146(4)(c) for each of the years in question. We are of the view that paragraph 146(4)(c) would apply to 1979 and all subsequent taxation years. This is possible because the years in question would not be statute barred since the Department has never issued notices of assessment to Trustco in respect of the particular years. We note that, if the RRSP trust is not taxed, it would be difficult to include the post-death non tax sheltered income amounts of the RRSP trust in the recipient’s income given the specific exclusion of these amounts in the definition of benefit.

We trust that the above comments will be helpful in your review of the above proposed distribution from the RRSP.

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