4 August 1992 Income Tax Severed Letter 9215095 - Minimum Tax and Payment Out of DPSP

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.

921509
24(1) A. Payette
(613) 957-8953

Attention:19(1)

August 4, 1992

Dear Sirs:

Re: Subsection 104(27.1) and paragraph 127.52(1)(a) of the Income Tax Act (the "Act")

This is in reply to your facsimile dated May 13, 1992, wherein you requested our technical interpretation in the following situation.

An estate was the beneficiary of a deferred profit sharing plan ("DPSP") of which the deceased individual was a member. As a result of the death of the individual, his estate has received a lump sum payout of the total funds in the DPSP. The estate wishes to designate an amount under subsection 104(27.1) to have become payable by the spouse of the deceased. The spouse would then make a contribution to an RRSP for this amount, and claim a deduction under paragraph 60(j). Your question is to whether the 60(j) deduction by the spouse would be added back for purposes of the minimum tax.

Our opinion

Paragraph 127.52(1)(a) of the Act states, in part, that:

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

• "Subject to subsection (2), an individual's adjusted taxable income for a taxation year is the amount that would be his taxable income for the year or his taxable income earned in Canada for the year, as the case may be, if it were computed on the assumption that
(a) the aggregate of all amounts deductible under any of paragraphs 8(1)(m) and 60(i) to (j.2) in computing the individual's income for the year were the lesser of
• (i) the aggregate of the amounts otherwise so deductible, and (ii) the aggregate of

(A) ..., (B) all amounts each of which was included in computing the individual's income for the year and is a single payment out of or under a deferred profit sharing plan, a superannuation or pension fund or plan or a foreign retirement arrangement

• (I) as a consequence of the death, withdrawal from the fund, plan or arrangement or termination of employment of a person,

(...)"

Paragraph 127.52(1)(a) of the Act provides that, in computing the adjusted taxable income of an individual for the purpose of computing minimum tax, no deduction may be claimed in respect of contributions to registered pension plans, registered retirement savings plans or deferred profit sharing plans ("DPSP"), except to the extent of the amount included in the individual's income in respect of certain lump sum amounts received from pension plans and DPSPs.

Subsection 104(27.1) of the Act provides that:

• "Where (a) a testamentary trust has received in a taxation year (in this subsection referred to as the "trust year") throughout which it was resident in Canada an amount from a deferred profit sharing plan as a consequence of the death of the settlor of the trust,
• (b) the settlor was an employee of an employer who participated in the plan on behalf of the settlor, and

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

• (c) the amount is not part of a series of periodic payments,

such portion of the amounts as

• (d) is included under subsection 147(10) in computing the income of the trust for the trust year, (e) may reasonably be considered (having regard to all the circumstances including the terms and conditions of the trust arrangement) to be part of the amount that, by reason of subsection (13), was included in computing the income for a particular taxation year of a beneficiary under the trust who was, at the time of the settlor's death, a spouse (within the meaning assigned by subsection 146(1.1)) of the settlor, and
• (f) is designated by the trust in respect of the beneficiary in the trust's return of income under this Part for the trust year
• is, for the purposes of paragraph 60(j), an eligible amount in respect of the beneficiary for the particular year."

In the circumstances described in subsection 104(27.1) of the Act, a testamentary trust is permitted to designate in respect of a beneficiary any portion of a lump sum payment from a DPSP as an eligible amount for the purposes of paragraph 60(j) of the Act. The amount thereby designated allows the spouse of the settlor of the trust to transfer the amount to an RRSP and claim a deduction under paragraph 60(j) of the Act. However, unlike subsections 104(27) or 104(28), for example, the amount designated by the trust does not have the effect of retaining its character when designated by the trust, but simply renders the amount designated eligible for a rollover under paragraph 60(j). The amount so designated by the trust is however taxable in the hands of the beneficiary under subsection 104(13) of the Act and is deemed by paragraph 108(5)(a) of the Act to be income from a property that is an interest in the trust.

It follows that the amount designated by the trust under subsection 104(27.1) of the Act would not qualify as "a single payment out of or under a deferred profit sharing plan" as referred to in subclause 127.52(1)(a)(ii)(B)(I) of the Act.

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information

We trust the foregoing is of assistance.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information