Section 146.3

Subsection 146.3(1)

Annuitant

Administrative Policy

11 July 2016 External T.I. 2015-0592681E5 F - RRIF Death of an annuitant

surviving spouse who has been predesignated can qualify as an RRIF annuitant even if he or she does not receive any annuity payments

Where the death of an annuitant under an RRIF is followed very shortly by the death of the surviving spouse, can the income inclusion under s. 146.3(6) be to the surviving spouse, and is such survivor entitled to a deduction under s. 146.3(6) or s. paragraph 60(l)? After noting that, under the s. 146.3(1) definition, an “annuitant” includes the first individual to whom the carrier has undertaken to make qualifying payments (the "First Annuitant"), and after the death of the First Annuitant, also extends to the surviving spouse if the carrier has undertaken to make qualifying payments which (under (b)(i) of the definition) would generally include payments made pursuant to an election made by the First Annuitant (under the RRIF contract or by will) , includes such surviving spouse (the "Survivor Annuitant"), CRA stated (TaxInterpretations translation):

9522107…confirmed that a spouse could potentially qualify as Survivor Annuitant despite not receiving any sum before the spouse’s own death. In this interpretation…the spouse was designated as the survivor annuitant under the RRIF contract. This conclusion continues to be the position of the CRA…where a Spouse is a Survivor Annuitant by virtue of subparagraph (b)(i) of the definition "annuitant" in subsection 146.3(1).

CRA went on to note that “if the death of the Spouse of the First Annuitant occurs before the carrier undertakes to make Payments with the consent of the legal representative of the First Annuitant, then all the conditions [in (b)(ii)] cannot be satisfied… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(6.2) deduction for transfer to eligible recipient by surviving spouse 277
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(l) transfer by eligible recipient of payment out of RRIF 267
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Refund of Premiums consequence of death if named as beneficiary in RRSP contract 154

Designated Benefit

Administrative Policy

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 6, 2017-0707791C6 F - RRIF - Successive Deaths

death of the surviving spouse before she received payment of the testator’s legacy of his RRIF precluded access to the designated benefit rules

On the death of Mr. A, his Will provided a particular legacy of his RRIF to his surviving spouse (Mrs. B), who died half a year later before his estate was administered. 2015-0592681E5 indicates that, in order for an amount to qualify as a "refund of premiums" as defined in s. 146(1) (used in the "designated benefit" definition in s. 146.3(1)), the eligible recipient ("Eligible Recipient") described in that definition must be alive at the time of the joint designation of the amount as a designated benefit.

(a) Is Mrs. B considered to have received a designated benefit by virtue of her being alive at the time of the formation of the estate on the death of Mr. A?

(b) Do the amounts of the particular legacy paid to the legal representative of Mrs B’s estate qualify as “designated benefits” under para. (b) of the definition in s. 146.3(1)?

(c) Can the estate of Mrs. B receive the RRIF amounts payable to Mrs. B notwithstanding her death and pay the tax on those amounts?

CRA confirmed that the premature death of Mrs. A precluded access to the designated benefit rules, stating:

The mere fact that Mrs. B was the surviving spouse of Mr. A at the time of his death is not sufficient to cause Mrs. B to be deemed, pursuant to subsection 146.3(6.1), to have received a designated benefit at the time the deceased annuitant's legal representative receives amounts from Mr. A's RRIF. …

Subsection 146.3(6.1) [as well as para. (a) of “designated benefit”] has no application in this case since the legal representative receives nothing under the RRIF of the deceased last annuitant. …

[S]ince Mrs. B died before amounts were paid under the RRIF to the legal representative of the deceased last annuitant … the conditions of paragraph (a) cannot be met.

CRA went on to add, respecting para. (b) of the “designated benefit” definition:

Where … an amount from the RRIF of the deceased last annuitant is paid to the estate of the deceased and an Eligible Recipient is a beneficiary of the estate (as legatee or heir), the amount is not paid to the Eligible Recipient "out of or under the fund" and this situation does not comply with paragraph (b)… .

Accordingly, the amount deemed to be received by Mr. A pursuant to subsection 146.3(6) ...would be equal to the FMV of the RRIF property at the time of death, with no deduction available to reduce this amount.

The amounts included in the computation of Mr. A's income that were subsequently paid under Mr. A's RRIF to his legal representative would not constitute taxable benefits to the estate of Mr. A, by virtue of paragraph 146.3(5)(a).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(6.1) s. 146.3(6.1) did not apply as the executor did not receive the RRIF legacy 162

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 5, 2017-0707801C6 F - RRIF transfers – partition of family patrimony

payment from a deceased’s RRIF to the RRIF of the surviving spouse who was excluded under the will qualified as designated benefit

A couple separated in 2010 without proceeding to an official division of their assets. When Monsieur subsequently died, his will excluded Madame. She made a claim against the executor, and they then agreed in writing to transfer the property in the deceased’s RRIF to her for contribution to her RRIF. Can the amounts be transferred to her RRIF as “designated benefits” (as defined in s. 146.3(1),) with there being a resulting income inclusion and contribution exclusion to her? CRA responded:

[A]mounts paid out of the RRIF to the legal representative of the deceased annuitant, which the legal representative would like to transfer to the surviving spouse in settlement of her rights in the family patrimony, could qualify as a designated benefit, provided that these amounts are designated jointly by the legal representative and the surviving spouse on Form T1090 filed with the Minister … .

By virtue of subsection 146.3(6.1), where an amount qualifies as [such] a designated benefit… a designated benefit is deemed to be received by the surviving spouse, and not by any other person, out of or under the RRIF at the time it is received by the legal representative.

Thus, an amount that qualifies as a designated benefit can reduce the deemed benefit received by the last deceased annuitant under subsection 146.3(6)… [and] will be included in computing the surviving spouse's income in accordance with subsection 146.3(5)… .

However, where the conditions of paragraph 60(l) are met, the designated benefit included in computing the surviving spouse's income pursuant to subsection 146.3(5) and paragraph 56(1)(t) can be deducted from his or her income. …

[T]he transfer of the designated benefit to the surviving spouse could possibly be tax-free, provided that the surviving spouse pays an amount equal to the eligible amount [defined in s. 146.3(6.11)] as a premium under an RRSP, or a PRPP contribution, to acquire a qualifying annuity that meets certain conditions, or in consideration for an RRIF, as the case may be, within the time period provided in paragraph 60(l).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(14) amount paid to surviving spouse's RRIF did not qualify under s. 146.3(14) 157
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(l) transfer from deceased's RRIF to RRIF of surviving spouse in settlement of claim 168

Paragraph 146.3(1)(b.1)

Administrative Policy

14 September 1992 T.I. (Tax Window, No. 24, p. 19 ¶2214)

It is the responsibility of the trustees of the plan to determine the fair market value of plan assets. Where the fair market value of a mortgage held by the plan is in fact nil, there is no need to assign it a value for purposes of determining the "minimum amount".

8 February 1990 T.I. (July 1990 Access Letter, ¶1339)

In determining the number of whole years, one should consider only completed years and disregard fractions of years. In light of s. 30 of the Interpretation Act (Canada), a person born on December 31, 1920 or January 1, 1921 would have been one year old at the commencement of 1922, and 69 years old at the beginning of 1990, for purposes of s. 146.3(1)(b.1).

15 December 1989 T.I. (May 1990 Access Letter, ¶1234)

A spouse who acquires the right to amounts payable under the RRIF of an annuitant can change the number of years on which the minimum amount is based only by establishing a new RRIF.

Subsection 146.3(2) - Acceptance of fund for registration

Administrative Policy

3 October 1996 T.I. 962856 (C.T.O. "RRSP Administration & Investment Management Fees")

Payment by an annuitant of the fees charged for the management of property of an RRIF would be prohibited by s. 146.3(2)(f) and would result in an inclusion in income of the annuitant equal to the fair market value of the RRIF property.

Paragraph 146.3(2)(e)

Administrative Policy

10 January 1996 T.I. 952766 (C.T.O. "Irrevocable Beneficiary Under Insured Registered Retirement Income Fund")

In response to a query as to whether a RRIF could be established to name the spouse as successor annuitant, and children the irrevocable beneficiaries upon the spouse's death, RC indicated that there is nothing in the Act which would prevent an annuitant from entering into an arrangement under which he irrevocably designated a beneficiary in accordance with the Insurance Act.

Paragraph 146.3(2)(f)

Administrative Policy

23 January 2004 Internal T.I. 2003-005193 -

Damages in respect of breach of contract or a tort paid by an employer to compensate for investment losses caused by the employer as administrator of a registered plan which has been established for a group of employees are not considered employment income to the employees; nor is the employer or the employee considered to have made a contribution to the plan as a consequence of the payment of the damages.

Subsection 146.3(3) - No tax while trust governed by fund

Paragraph 146.3(3)(c)

Administrative Policy

31 January 2007 External T.I. 2006-0213111E5 - RRIF TRUST - CARRYING ON A BUSINESS

After stating that "it is our general view that any undertaking or activity of a taxpayer that is carried on for profit or with a reasonable expectation of profit would be viewed as carrying on a business", the Directorate indicated that "it would appear that a RRIF that engages in a securities lending practice for a fee would likely be considered to be carrying on a business".

Subsection 146.3(4) - Disposition or acquisition of property by trust

Cases

St. Arnaud v. Canada, 2013 DTC 5074 [at 5909], 2013 FCA 88

The taxpayers were fraudulently induced to purchase worthless securities with their RRSP funds. Webb JA found that s. 146(9) did not apply to include the difference between the purchase price and the (nil) fair market value in the taxpayers' income. The trial judge had erred in concluding that securities had in fact been acquired. Under the Alberta Business Corporations Act, the corporations in question could not hold shares in themselves, so that a purported acquisition by one of the RRSPs of shares which the vendor corporation purportedly owned of itself was not valid. Furthermore, in the case of purported purchases by other of the RRSPs of shares of a corporation from a third party, the evidence supported a finding that such "vendor" did not own such shares.

The taxpayers had also argued that s. 146(9) should only apply in situations where the acquisition of property by an RRSP or RRIF is part of a scheme devised to allow an annuitant to extract funds from an RRSP or RRIF without paying tax on such amounts. The majority found it was unnecessary to consider this argument in light of its conclusions above.

In a concurring opinion, Sharlow JA agreed with the taxpayer's alternative argument. The purpose of s. 146(9) is not to punish investment decisions merely because they prove to be unwise - that is, merely because the fair market value of an acquired property is less than the taxpayer thinks it is. For example, a taxpayer who spends $800,000 of RRSP funds on securities that she believes are worth $800,000 but are in fact only worth $600,000 clearly should not be hit with a $200,000 income inclusion (para. 61). There was no basis in the present case for concluding that the taxpayers should be treated any differently.

(Another taxpayer attempted to purchase the worthless shares with RRIF funds, and the judges reached similar conclusions regarding the application of the similarly worded s. 146.3(4).)

Subsection 146.3(6) - Where last annuitant dies

Administrative Policy

7 March 1990 T.I. (August 1990 Access Letter, ¶1387)

Where the surviving spouse is not named as beneficiary in either the RRIF application or the will but is the sole beneficiary of the will, the taxpayer should submit complete details in writing to his local district taxation office for consideration.

Subsection 146.3(6.1)

Administrative Policy

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 6, 2017-0707791C6 F - RRIF - Successive Deaths

s. 146.3(6.1) did not apply as the executor did not receive the RRIF legacy

On the death of Mr. A, his Will provided a particular legacy of his RRIF to his surviving spouse (Mrs. B), who died half a year later before his estate was administered. CRA indicated that since Mrs. A died before receiving the legacy, the fair market value of the RRIF property was included in the income of Mr. A in his terminal return. CRA stated:

[S]ince Mrs. B died before amounts were paid under the RRIF to the legal representative of the deceased last annuitant … the conditions of paragraph (a) [of "designated benefit"] cannot be met.

Where … an amount from the RRIF of the deceased last annuitant is paid to the estate of the deceased and an Eligible Recipient [as described in s. 146(1) - refund of premiums] is a beneficiary of the estate (as legatee or heir), the amount is not paid to the Eligible Recipient "out of or under the fund" and this situation does not comply with paragraph (b)… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(1) - Designated Benefit death of the surviving spouse before she received payment of the testator’s legacy of his RRIF precluded access to the designated benefit rules 444

11 October 2013 Roundtable, 2013-0495281C6 F - Question 9 - APFF Round Table

transfer of RRIF by executor to RRIF of surviving spouse

Does the position in 2002-0141355 - that an RRSP can be transferred to the RRSP of a surviving non-resident spouse, who can open an RRSP, even if he or she does not have a Social Insurance Number ("SIN") – apply to the transfer of an RRIF? CRA responded:

[W]here an amount out of the RRIF of a deceased annuitant is paid to the deceased's legal representative and the surviving spouse is the beneficiary of the estate, subsection 146.3(6.1) deems the amount received by the legal representative of the last annuitant under the fund to be received by the surviving spouse to the extent that, on the one hand, the amount would have been a refund of premiums if it had been paid, under the plan, to the beneficiary spouse of the annuitant's estate and that, on the other hand, it is jointly designated by the legal representative and the surviving spouse in the prescribed T1090 form … filed with the Minister as required by the definition of "designated benefit" in subsection 146.3(1).

An amount that qualifies as a designated benefit is a benefit to the spouse beneficiary who receives it, or is deemed to have received it, and the spouse must include it in computing income pursuant to subsection 146.3(5) and paragraph 56(1)(t). This amount may be deducted in computing the spouse's income under paragraph 60(l) to the extent that an amount equal to the sum of the amounts included as a refund of premiums is paid by or on behalf of the spouse in the year or within 60 days after the end of the year as premium under an RRSP, RRIF or for an eligible annuity of which the surviving spouse is the annuitant.

The requirement to hold a SIN in order to register a RRIF is explicitly included in the definition of the term "RRIF" provided in subsection 146.3(1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Paragraph 212(1)(l) transfer to RRSP or RRIF of surviving non-resident spouse: SIN required; payment can be made directly to RRSP/RRIF of surviving spouse in accordance with joint instructions even where no specific non-will designation is made 510
Tax Topics - Income Tax Act - Section 146 - Subsection 146(8.1) deemed receipt of refund of premiums for amount paid to executor, with deemed benefit to recipient spouse 258
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - lParagraph 212(1)(q) direct transfer to RRIF of surviving non-resident spouse 280

Subsection 146.3(6.11)

Administrative Policy

7 October 2016 APFF Financial Strategies and Financial Instruments Roundtable Q. 2, 2016-0651711C6 F - RRIF, Transfer of designated benefit

computation of eligible amount following year of death

At Mr. X’s death in November 2015, he held a registered retirement income fund (RRIF) with a fair market value (FMV) of $140,000, which stayed at that level until that sum was distributed in January 2016 to his executor who, in turn, transferred that sum to Mrs. X as the sole beneficiary. The minimum amounts for 2015 and 2016 were $11,000 and $10,000, respectively. In accordance with s. 146.3(6.2), $140,000 was deducted from the income amount that the deceased was deemed to receive under s. 146.3(6). Can CRA confirm that $140,000 was the eligible amount of Mrs. X under s. 146.3(6.11), so that this amount can be transferred to her RRIF or RRSP, or to purchase an anuuity, under s. 60(l)(v)?

CRA responded:

[A]ll elements of the formula refer to the same year, being…the year of the inclusion of the designated benefit in computing the spouse's income under subsection 146.3(5).

In your example, the taxation year in element C of the formula in subsection 146.3(6.11) is the year 2016, which is the taxation year in which Mrs X is required to include the designated benefit in computing her income by reason of the combined application of subsections 146.3(6.1) and 146.3(5). Since the RRIF annuitant died in the prior year, the lesser of the amounts in variables (a) and (b) of element C of this formula will be the amount of variable (a), which is nil. Indeed, no amount will be included in computing the deceased annuitant's income by virtue of subsection 146.3(5) for the taxation year subsequent to that of death.

In your example, taking as given that the portion of the designated benefit of the individual which is included in computing the income of the spouse under subsection 146.3(5) is $140,000, then the eligible amount in your example would be $130,000.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 54 - Personal-Use Property land underlying duplex used 40% personally is not personal-use property 214
Tax Topics - Income Tax Regulations - Regulation 1102 - Regulation 1102(2) Reg. 1102(2) deems building to be separate from land and does not bifurcate the land 161
Tax Topics - Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(iii) capital loss recognition on land underlying duplex used 40% personally 71

Subsection 146.3(6.2)

Administrative Policy

11 July 2016 External T.I. 2015-0592681E5 F - RRIF Death of an annuitant

deduction for transfer to eligible recipient by surviving spouse

Where the death of an annuitant under an RRIF is followed very shortly by the death of the surviving spouse, CRA accepts that the (briefly) surviving spouse will qualify as an annuitant under the RRIF provided that the predeceased spouse had so designated the survivor by will or in the RRIF contract – even if the surviving spouse did not receive any annuity payments before his or her death. This means that the deemed inclusion of the fair market value of the fund property will be in the hands of the second-to-die of the two spouses – except to the extent that there then is a transfer out of the fund to a financially dependent child or other eligible beneficiary (in which case, the eligible amount of the transfer is included in the transferee’s income under s. 146.3(5)(a).

In particular after defining the surviving spouse of the annuitant or a financially dependent child or grandchild (as defined in the s. 146(1) – “refund of premiums” definition) as an “Eligible Recipient,” and describing the two types of “designated benefits” in s. 146.3(1), CRA stated (TaxInterpretations translation):

the amount that is included in computing the deceased’s income, under subsection 146.3(5) and paragraph 56(1)(t), will be equal to the FMV of the RRIF property upon the death of the annuitant minus the amount determined under subsection 146.3(6.2). However, the amount of this reduction will be a benefit to be included in computing the income of the Eligible Recipient.

… In summary, subsection 146.3(6.2) allows for the determination of what portion of the designated benefit will be included in computing the deceased annuitant's income and what portion will be included in computing the income of the Eligible Recipient.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(1) - Annuitant surviving spouse who has been predesignated can qualify as an RRIF annuitant even if he or she does not receive any annuity payments 243
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(l) transfer by eligible recipient of payment out of RRIF 267
Tax Topics - Income Tax Act - Section 146 - Subsection 146(1) - Refund of Premiums consequence of death if named as beneficiary in RRSP contract 154

Subsection 146.3(11) - Change in fund after registration

Administrative Policy

3 October 1996 T.I. 963156 (C.T.O. "Fees for RRSP and RPP")

Expenses relating to the administration or management of the property in an RRIF will result in an income inclusion to the annuitant pursuant to s. 146.3(11).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(5) 20

Subsection 146.3(14)

Administrative Policy

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 5, 2017-0707801C6 F - RRIF transfers – partition of family patrimony

amount paid to surviving spouse's RRIF did not qualify under s. 146.3(14)

A couple separated in 2010 without proceeding to an official division of their assets. When Monsieur subsequently died, his will excluded Madame. She made a claim against the executor, and they then agreed in writing to transfer the property in the deceased’s RRIF to her for contribution to her RRIF. However, the depositary for the deceased’s RRIF refused to sign the Form T2220 for such transfer to her RRIF.

In finding that s. 146.3(14) was not available, CRA stated:

Where, as in the situation described, the last annuitant of the transferor RRIF is deceased, the RRIF no longer has an annuitant within the meaning of subsection 146.3(1), so that a transfer of property from the RRIF of an annuitant is no longer possible. In any event ... [e]ven if subsection 146.3(14) were applicable after the death of the last RRIF annuitant, it would not have the effect of rendering subsection 146.3(6) inapplicable immediately before the death of the last annuitant.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146.3 - Subsection 146.3(1) - Designated Benefit payment from a deceased’s RRIF to the RRIF of the surviving spouse who was excluded under the will qualified as designated benefit 328
Tax Topics - Income Tax Act - Section 60 - Paragraph 60(l) transfer from deceased's RRIF to RRIF of surviving spouse in settlement of claim 168

6 October 2017 APFF Financial Strategies and Financial Instruments Roundtable Q. 1, 2017-0705221C6 F - Property transfers - common law partners in Québec

rollover pursuant to common-law partners' settlement agreement

CRA considered that, although there is no right in Quebec arising out of a common-law partnership (as per Éric v. Lola, 2013 SCC 5), it nonetheless “is not impossible for the annuitant to determine to create rights under a written separation agreement between the annuitant and the annuitant’s common-law partner or former common-law partner relating to the division of property” – and that “such an agreement could be concluded at the time of separation, whether or not a common-law union agreement providing for the rights of each in the event of the union's failure had been previously signed.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(16) - Paragraph 146(16)(b) a common-law partners’ separation agreement can engage s. 146(16)(b) or 146.3(14) rollover even if technically they have no legal rights to settle 256
Tax Topics - Income Tax Act - Section 73 - Subsection 73(1.01) - Paragraph 73(1.01)(b) rollover under common-law partners' separation agreement irrespective of whether technically they have separation rights to settle 138