27 June 2001 Internal T.I. 2001-0071577 - RRSP - SEGREGATED FUND POLICY

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: Where the only asset held by an RRSP is a segregated fund policy, and the policy has a guaranteed minimum payout which is greater than the fair market value of the assets held in the segregated fund at the time of the annuitant's death, what is the proper amount for the purpose of 146(8.8)?

Position: The fair market value of the asset held by the RRSP at the time of the death is the minimum payout guaranteed by the segregated fund policy.

Reasons: The fair market value of the segregated fund policy is its cash equivalent at the time of death and this is equal to the greater of the fair market value of the assets held by the segregated fund and the guaranteed minimum payout.

		June 27, 2001

	TORONTO EAST TAX SERVICES 	HEADQUARTERS
		Income Tax Rulings
	Attention:  Duncan McKay	Directorate
G. Kauppinen
(613) 957-8971

		2001-007157

T4RSP Reporting on Death of a Taxpayer

This is in reply to your E-mail dated February 23, 2001 wherein you requested our comments regarding a segregated fund policy held in a taxpayer's registered retirement savings plan ("RRSP") at the time of his death.

Facts

You have forwarded to us the following information:

	Value of assets in segregated fund at death XXXXXXXXXX 			$XXXXXXXXXX
	Value at valuation date XXXXXXXXXX 			$XXXXXXXXXX 

	T4RSP			$XXXXXXXXXX 

Declared on taxpayer's final T1:

	Segregated fund minimum payout			$XXXXXXXXXX 

	Actual cash received from segregated fund held by RRSP			$XXXXXXXXXX 

Reported by estate on T3:

	Cash received less amount reported on final T1			$XXXXXXXXXX
	(XXXXXXXXXX )

You have asked our opinion as to the whether the amounts indicated above have been properly reported. You have further indicated that, as reported, the components of the ultimate cash amount received are as follows:

	Value of assets in segregated fund at death			$XXXXXXXXXX
	Add: Additional amount to make minimum payout			$ XXXXXXXXXX
	Reported on final T1			$XXXXXXXXXX 

	Reported on T3			$ XXXXXXXXXX 

	Total cash received (fully reported)			$XXXXXXXXXX 

Our Comments

In our opinion, the components of the actual cash amount ultimately paid out of the deceased taxpayer's RRSP have been properly reported (assuming paragraph 146(8.8)(b) and subsection 146(8.9) of the Act were not applicable). In particular, in our view, where a segregated fund policy held by an RRSP has a guaranteed minimum payment at the time of the death of the annuitant of the RRSP that is greater than the fair market value of the assets in the segregated fund, it is this minimum payment, and not the fair market value of the assets held by the segregated fund, which is the proper amount for purposes of paragraph 146(8.8)(a) of the Act.

Pursuant to paragraph 146(4)(c) of the Act, an RRSP will normally remain non-taxable on income earned until after the end of the year following the year in which the last annuitant of the RRSP died. Assuming that the assets were paid out in cash to the estate of the deceased annuitant of the RRSP before the RRSP itself became taxable, pursuant to subsection 146(8) of the Act and by virtue of the definition of benefit in subsection 146(1) of the Act, all amounts received by the estate, other than the portion that was included on the annuitant's final T1 under subsection 146(8.8) of the Act, will be included in the estate's income as a benefit from an RRSP.

Roberta Albert, CA
Manager
Deferred Income Plans Section
Income Tax Rulings Directorate

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