19 June 1996 External T.I. 9611895 - RRSP AND 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.

	                     	961189
XXXXXXXXXX		                            M.P. Sarazin

Attention: XXXXXXXXXX

June 19, 1996

Dear Sirs:

Re: Taxation of RRSP on Death of the Annuitant

This is in reply to your letter dated March 26, 1996, wherein you requested our comments regarding the taxation of a registered retirement savings plan ("RRSP") on the death of the annuitant where the annuitant's spouse is the beneficiary designated under the RRSP and creditors have a claim against the deceased annuitant's estate.

Situation 1

In the case where the creditors recover their debts from the RRSP before the RRSP property is transferred to the spouse, you are of the view that, since no amount was received by the spouse, the spouse should not have an income inclusion with respect to the debt recovery. Since the RRSP property was receivable by the spouse under the terms of the plan and the spouse, as beneficiary designated under the RRSP, is entitled to enforce payment against the plan administrator under section 53 of Ontario's Succession Law Reform Act, you have also expressed the view that the deceased annuitant's estate should not have to include the amount of the debt recovery in income.

Where an annuitant under an unmatured RRSP dies, the provisions of subsection 146(8.8) of the Income Tax Act (the "Act") deem the deceased annuitant to have received, immediately before death, an amount as a benefit out of or under the RRSP equal to the fair market value of all of the property of the plan at the time of death. However, the deceased annuitant is entitled to deduct a fraction of the refund of premiums paid out of the plan in accordance with the formula in subsection 146(8.9) of the Act. "Refund of premiums" is defined in subsection 146(1) of the Act and includes any amount paid to a spouse of the annuitant out of or under an RRSP of the annuitant (other than any part of that amount that is a tax-paid amount in respect of the plan), where the annuitant died before the maturity of the plan and that amount was paid as a consequence of the death.

In the above situation, since the amount paid to the creditors would not qualify as a refund of premiums, the amount would be included in the deceased annuitant's final income tax return.

Situation 2

In the case where, through the courts, the creditors recover their debts from the spouse's RRSP after the spouse has received the property from the deceased annuitant's RRSP and transferred the property to his or her RRSP, you are uncertain as to whether the debt recovery would be included in the spouse's income. In addition, you are of the view that an argument may be presented that the debt recovery property was being held in trust by the spouse's RRSP on behalf of the deceased annuitant's estate and the previous income tax return reflecting the original transfer of RRSP property, if not statute-barred, should be amended.

In order to determine the tax consequences relating to this type of situation, we would have to review all of the relevant facts, including the decision of the particular court. However, the review of past transactions falls within the responsibility of Tax Services Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known.

We trust the above comments will be of assistance to you.

Yours truly,

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