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.
Dear Sir:
We are responding to your letter of October 18, 1990, in which you asked what the tax treatment will be for annuities generated from Registered Retirement Savings Plan (“RRSP”) funds upon the death of the annuitant.
XXX
As noted in Information Circular 70-6R2, we do not give opinions in respect of specific transactions other than in response to an advance income tax ruling request. However, we will offer the following general comments.
Upon the death of a person who is an annuitant (the “deceased”) under an annuity purchased with RRSP funds, the deceased is deemed to have received a benefit out of or under the RRSP equal to the fair market value of all the property in the plan at the time of death. The amount of the benefit is included in the deceased's income in the year of death and the deceased is taxed on the amount included in income.
The distribution of the former RRSP funds to the beneficiaries from either the deceased's estate or the RRSP will not normally result in tax becoming payable by the beneficiaries as the payment of those funds is not considered to be a benefit out of or under the RRSP. There are two exceptions. If the amount payable to the beneficiaries in respect of the RRSP funds exceeds the fair market value included in the deceased's income, the difference between those two amounts may be taxable in the hands of the beneficiaries. Secondly, if, between the date of death and the date of the distribution of funds, the former RRSP funds earn interest, that interest will be taxed either in the hands of the beneficiaries or the estate. IT-500, which explains the Department of National Revenue's position on the tax consequences on the death of the annuitant is enclosed for your information.
It is not possible to comment on how the commuted value will be determined. That determination depends upon the terms of the annuity contract and should be discussed with the issuer of the annuity. XXX Your tax advisor or estate lawyer would be in a better position to advise you on how to proceed.
We trust the foregoing comments are of some assistance.
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© His Majesty the King in Right of Canada, 1990
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© Sa Majesté le Roi du Chef du Canada, 1990
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