21 September 1994 External T.I. 9419215 - REFUND OF PREMIUMS TO SPOUSE

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:

Whether various methods of transferring RRSP property from an estate to the spouse of a deceased intestate annuitant will satisfy the requirement in the definition of a "refund of premiums" that the amount is paid "as a consequence of death".

Position TAKEN:

Described acceptable methods previously described in Interpretation Bulletins.

Reasons FOR POSITION TAKEN:

Wording of 248(8) and case on point.

XXXXXXXXXX 941921

Attention: XXXXXXXXXX

September 21, 1994

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your request for an advance ruling on behalf of the above-named taxpayer. As explained in our telephone message of August 8, 1994 (Wayne Harding), an advance ruling can only be given in respect of a proposed transaction and your request refers to five alternative methods for transferring the property in a registered retirement savings plan (RRSP) to the spouse of the RRSP annuitant who died intestate in 1993. The situations you described involve disclaimers under the laws governing intestacy and orders under a dependants' relief statute. Although we are unable to issue a ruling, we can provide the following general comments concerning the definition of "refund of premiums" in subsection 146(1) and subsections 146(8.1), (8.8), (8.9) and 248(8) of the ^{Income Tax Act}.

When an annuitant of an unmatured RRSP dies subsection 146(8.8) deems the annuitant to have received immediately before death an amount equal to the fair market value of the RRSP property. Subsection 146(8.9) of the Act allows a deduction (from the amount deemed to be received) of an amount not exceeding the amount determined by the formula in that subsection. It is not necessary to go into the calculation of the deduction for purposes of this discussion.

The deduction in subsection 146(8.9) of the Act relates to the receipt of a "refund of premiums" as defined in subsection 146(1) of the Act, and with respect to a spouse of the annuitant means any amount paid to a spouse from an unmatured RRSP that was paid "as a consequence of the death" of the annuitant. (Amounts paid to the estate that would have been a refund of premiums if paid directly to the spouse (i.e., from an unmatured RRSP and paid as a consequence of death) may be jointly designated by the deceased's legal representative and spouse in accordance with subsection 146(8.1) and will be deemed to be received by the spouse in the year as a benefit that is a "refund of premiums".)

Where the annuitant dies intestate, amounts may be received "as a consequence of death" in accordance with subsection 248(8) of the Act in the following two ways.

1. A transfer, distribution or acquisition of property as a consequence of the law governing the intestacy of a taxpayer;

2. A transfer, distribution or acquisition of property as a consequence of a disclaimer, release or surrender by a person who was a beneficiary on the intestacy of a taxpayer. Note that "release or surrender" is defined in subsection 248(9) of the Act to mean a release or surrender under provincial law "that does not direct in any manner who is entitled to benefit therefrom". "Disclaimer" is not defined in the Act and takes on its common law meaning. As stated in Interpretation Bulletin IT-305R3 ("Establishment of Testamentary Spouse Trust") at paragraph 3:

A disclaimer involves an outright refusal to accept a gift, share or interest under a will, with no stipulation as to how the taxpayer's legal representative should distribute the disclaimed property.

Where there is no will, a disclaimer would involve the refusal of the beneficiary to accept an interest under the law governing the intestacy and would not include a disclaimer which transfers or assigns the beneficiary's rights to anyone else.

The Department takes the position that property is transferred as a consequence of death where the property passes to a person pursuant to a court order given under legislation such as a dependants relief or family law statute. This position is implicit in the words used in Interpretation Bulletin IT-449R ("Meaning of 'Vested Indefeasibly'") at paragraph 7 since in order for the provisions discussed in that paragraph to be invoked (e.g. subsections 70(6) and 70(9) of the Act) the property must be transferred as a consequence of death.

This position is based on the ratios in Hillis and Hillis v. The Queen 83 DTC 5365 (FCA) in which the three judges delivered separate reasons but in which all three accepted without question that the property had passed to the deceased's spouse as a "consequence of death". Identification of the method by which the property was transferred was not unanimous, however; one judge found the transfer to be effected by the order under the Saskatchewan Dependants' Relief Act, the second judge found that the property passed by joint effect of the court order and the disclaimers of the other beneficiaries under the Saskatchewan Intestate Succession Act, and the third judge gave equal weight to the order and the disclaimers treating both as independent methods of transferring title. It was not crucial to the reasons that one method be found to have effected the passage of title, but the Department has accepted that an order under dependants' relief legislation is sufficient.

The Department has also adopted this position with respect to RRSP property passing on death in Interpretation Bulletin IT-500 ("Registered Retirement Savings Plans...Death of Annuitant after June 29, 1978"). In discussing matured RRSP's at paragraph 6 of the Bulletin the following comments are made:

For purposes of subsection 146(8.91), the legal representative will be considered to receive amounts for the benefit of the spouse...if, under the...law governing intestate succession, the spouse is the sole beneficiary of the estate....The expression "for the benefit of the spouse" also covers the situation where, as a result of a court order in relation to the estate made pursuant to any law of a province providing for the relief or support of dependants, the spouse becomes entitled to receive either the entire estate or the estate's interest in the plan".

Subsection 146(8.91) requires that the legal representative receive the amount out of the matured RRSP "as a consequence of death" and "for the benefit of the spouse" and, thus, the Department's interpretation here can be extrapolated to the circumstances involving an unmatured RRSP of a deceased intestate annuitant. In fact, at paragraphs 9 and 10 of the Bulletin, the factors cited in paragraph 6 quoted above are stated to be relevant in determining whether an amount is a "refund of premiums" for purposes of making a joint designation under subsection 146(8.1) of the Act.

To summarize, and with respect to the situations described in your letter, it is our view that an amount out of an unmatured RRSP is received by a spouse "as a consequence of death" where the spouse is

1) the sole beneficiary of the estate by reason of an order under dependants' relief legislation;

2) the sole beneficiary of the estate by reason of the laws governing intestacy;

3) the sole remaining beneficiary of the estate by reason of the laws governing intestacy where the other beneficiary/ies have disclaimed their interests;

4) the sole beneficiary of all or a portion of the RRSP property by reason of an order under dependants' relief legislation;

5) the beneficiary of a designated amount to be paid out of the estate's property by reason of an order under dependants' relief legislation where no other beneficiary has a right in law to the RRSP property and thus the legal representative has the discretion to satisfy the order by transferring all or a portion of the RRSP property to the spouse.

The foregoing comments are an expression of opinion only and are, therefore, not binding on the Department. We trust, however, that they are helpful.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch