Section 146

There is no restriction on the currency in which an annuity may be denominated.

An annuity for a fixed term other than that specified in s. 146(1)(i.1)(ii) will not qualify.

In the course of a general discussion respecting transfers out of a deceased annuitant’s RRSP, CRA stated:

[E]ven if the child's or grandchild's income is below the limit in subsection 146(1.1), it must be established on the facts whether the child or grandchild was financially dependent on the individual immediately before the individual’s death. Facts to take into account include the income from all sources, the cost of living for the child or grandchild, their ability to support themselves, and help from others. If at the time of the annuitant's death, the child or grandchild lives with another person who supports him or her, he or she is generally not considered financially dependent on the annuitant.

RC will consider a short sale of shares covered by a long convertible debenture to be similar to the writing of a covered call option.

An RRSP that writes naked call options would be considered to be carrying on a business.

Explanation of why writing covered call options and purchasing call options are acceptable RRSP activities, whereas buying put options is not.

Entering into a spread, for example, simultaneously writing a naked call option with a higher exercise price against a call option purchased by the RRSP, would be indicative of carrying on a business and can subject the RRSP to taxation under s. 146(4).

The mere fact that the annuitant has ceased to be a resident of Canada does not imply that the income of the RRSP becomes subject to tax.

"It is our view that paragraph 146(4)(a) and subsection 146(10) of the Act do not apply where a RRSP buys shares payable on an instalment basis because an obligation to pay instalments does not constitute a loan or borrowed money with a relationship of lender and borrower between the parties."

The writing of naked call options (unlike the writing of covered call options) will be considered to be carrying on a business. Where the RRSP did not have funds to purchase the investments on the exercise of the option and was required to borrow, the income of the RRSP could be taxable under s. 146(4)(a).

An RRSP trust that engages in hedging or short sales might be considered to be carrying on a business rather than investing.

Entering into a spread transaction (i.e., simultaneously writing a naked call option with a higher exercise price against a call option purchased by the RRSP) would be indicative that the RRSP is carrying on a business.

Can a financial institution accept a contribution to an annuitant’s RRSP from a third party who is not the annuitant’s spouse (i.e., drawn on a bank account not belonging to the annuitant) – and, if so, whom should the receipt be issued to? CRA responded:

Yes. Provided that the payment is made at the direction or with the concurrence of the annuitant of the RRSP, we would generally treat it as a premium paid to the RRSP by the annuitant for the purposes of the various deduction provisions in the Act for RRSP contributions. If the payment was considered a gift to the RRSP, it would not be deductible but would be included in the calculation of Part X.1 tax on excess contributions.

…The contribution receipt should be issued to the annuitant, not the third party. However, no receipt should be issued where the payment is considered a gift to the RRSP.

S. 922 of the Taxation Act (Quebec) provided that “an individual may deduct, in computing his income for a taxation year, the amount that, by virtue of [ITA s. 146(5)], is allowed as a deduction for the year in computing his income for the purposes of the said Act.” An individual deducted a premium paid to his RRSP for the year form Quebec but not federal purposes. Did this amount qualify as having been allowed as a deduction federally?

CRA stated:

[I]f a taxpayer does not claim a deduction by virtue of subsection 146(5) in computing the taxpayer’s income for a taxation year, the deduction amount under that subsection for that taxation year will be nil.

Is the deadline met if a taxpayer signs a cheque on March 1 and deposits it in the mail on the same day? CRA responded:

In general, we consider a premium to have been paid on or before the 60th day after the end of the calendar year if the RRSP issuer received a cheque for an RRSP contribution on or before the 60th day, and the date of the cheque is also on or before the 60th day. In the absence of abuse, the date of deposit to the RRSP account will not be a factor that we will consider.

… [Here] the contribution was not made within the first 60 days of the calendar year.

Regarding preferred shares issued by a cooperative to a purchaser who commits at a later date to pay for the shares, but in the meantime transfers the shares to the purchaser’s RRSP, CRA stated that it was not within its purview to comment on whether, under Quebec law, such shares were validly issued. If there was a resulting contribution to the RRSP, “the proceeds of disposition and the amount of premium considered to be paid are equal to the fair market value of the property transferred or contributed by the taxpayer at the time of its disposition.”

"Where an annuitant of an RRSP or RRIF trust enters into a contract with a person for advice on the purchasing and selling of investments of the trust (i.e., the contract is between the annuitant and the person), it is the Department's position that the fees for such advice are an obligation of the annuitant and not of the RRSP or RRIF trust. We have reconsidered our previous position with respect to the payment of such fees by the annuitant outside of the RRSP or RRIF trust and we are now of the view that the payment of such fees by the annuitant would not be considered a premium or gift contributed to the RRSP or RRIF."

The payment of administration or management fees by an annuitant will constitute the payment of a premium to the RRSP.

Where a broker selling units of a mutual fund to an RRSP reimburses the RRSP for the redemption fee payable by it on redeeming a mutual fund previously held by it, the reimbursement will not be considered to be an advantage pursuant to s. 146(2)(c.4), will not constitute income to the annuitant and will not be considered to be a contribution to the RRSP by the annuitant.

Where an employee contributes a stock option to acquire a share for an exercise price of $3, when the share has a fair market value of $10, the employee will be entitled to a deduction under s. 146(5) of $7.

The reimbursement by brokers or dealers of the redemption fee owed by a registered plan unitholder on the exchange of mutual fund units for units in a mutual fund would not be considered a contribution by the annuitant with respect to an RRSP.

Following the maturation of an RRSP when an annuitant turns 71, she may continue to deduct amounts that were over-contributed to her RRSP so long as she has "earned income" in the previous year.

Discussion of rules governing contributions to an RRSP by a non-resident of Canada.

Annuitants who pay annual mortgage administration fee in respect of mortgages held in their RRSP will be considered to have made a gift to the plan.

An individual who has made an over-contribution in the year he turns 71 may deduct the amount of the over-contribution in subsequent years to the extent permitted by s. 146(5) if he has earned income in those years.

Fees relating to investments of an RRSP (e.g., fees for transfers, investment counselling and brokerage) are expenses of the trust. Accordingly, an annuitant who reimburses the trust for such costs will be considered to have made a contribution to the RRSP.

Contributions to an RRSP trust made to offset expenses of the trust described in IT-124R5, para. 2, represents premiums.

In respect of the 1992 and subsequent taxation years, RC will permit the deduction of contributions made to a spousal RRSP in respect of the deceased by the deceased's legal representatives where the contributions are made within the period from the date of death to 60 days after the calendar year in which the death occurred.

After referring to the inclusion under s. 146(10) to a non-depositary RRSP property of which has been used as security, CCRA stated:

Subsection 146(7) provides for a deduction in computing the annuitant's income for the taxation year in which the loan ceases to exist. In our view, this deduction is limited to the taxpayer's income for the year as computed under paragraphs 3(a) and 3(b). In addition, there is no provision in the Act that permits the carryover to a previous or future year of the undeducted balance of an amount deductible under subsection 146(7).

In response to a query on whether the income tax treatment of settlement payments made to RRSPs and RRIFs also applies to payments made to TFSAs, RESPs and RDSPs, CRA first summarized the treatment of the former as follows:

The CRA’s long-standing position regarding the tax consequences of a settlement payment made to an RRSP or RRIF in respect of an actionable loss suffered on a plan investment is that the payment will not constitute a contribution or gift to the plan and will not result in an income inclusion to the annuitant. The same applies if the payment is made to the annuitant but returned to the plan within a reasonable time. Generally, we consider a reasonable time to be the later of six months from the time the payment is received and the end of the tax year in which it was received. If the plan no longer exists or has matured, the payments may be made into another RRSP or RRIF of the annuitant. However, if the settlement payment is retained by the annuitant, we consider the annuitant to have received the payment as a benefit under the plan. The payment is included in the annuitant’s income under subsection 146(8) (RRSPs) or subsection 146.3(5).

The position is based on the surrogatum principle, which generally provides that the tax consequences of a settlement are based on the nature and purpose of the settlement and the amount it is intended to replace.

The executor of the estate of the deceased annuitant of an RRSP trust was unaware of the RRSP, did not notify the issuer of the RRSP, and settled and distributed the estate (to herself as the sole heir, being teh surviving spouse) without regard to the RRSP. After the RRSP became unclaimed property, a Commission (the "DPBNR") responsible for administering Québec’s Unclaimed Property Act ("UPA") instructed the RRSP issuer to wind up the RRSP, i.e. to dispose of the securities held therein, and to remit the proceeds of disposition in cash to the DPBNR. In a subsequent taxation year, the surviving spouse of the deceased RRSP annuitant claimed and received the amount (plus interest and net of fees) from the DPBNR by virtue of being the sole estate beneficiary.

CRA found that the amount paid to the surviving spouse was to be included in her income under the surrogatum principle as being in lieu of a payment that would have been received under s. 146(8). In this regard, however, it noted:

[A]t the time the DPBNR (as administrator) received a benefit under an RRSP on behalf of an unidentified beneficiary (the beneficial owner), the beneficial owner was unknown and could not be identified. However, it is [its] longstanding position … that the CRA must … rely on the facts as they exist at the end of the taxation year. …

To the extent that, at the end of a particular taxation year in which the DPBNR received a benefit under an RRSP, the beneficial owner was not identified with certainty, the facts as they existed at the end of the particular taxation year did not permit the benefit to be included in computing a taxpayer's income. The fact that the identity of the beneficial owner is clarified in a subsequent year does not change the facts as they existed at the end of the particular taxation year. Consequently, an amount received in a particular taxation year by the DPBNR on behalf of a beneficial owner and paid in a subsequent year to the same beneficial owner, once identified, is not required to be included in computing the beneficial owner's income in the particular taxation year.

Regarding the seizure of an RRSP during bankruptcy, and when that would result in an income inclusion under s. 146(8) to the taxpayer, CRA summarized the procedure under s. 38 of the Bankruptcy and Insolvency Act for the creditor to go through the court to seize the RRSP, and stated:

[A] creditor who would have commenced such proceedings against a bankrupt's RRSP would, upon the order of the court of competent jurisdiction granting the application, have an interest in the property held by the RRSP. However, until the interest is enforceable, the creditor cannot remove the property from the RRSP. The interest becomes enforceable once a court of competent jurisdiction rules that the money held by the RRSP is seizable. Consequently, the withdrawal of the RRSP funds as a result of the creditor exercising the creditor’s rights would result in the termination of the RRSP at that time. In those circumstances, the funds paid out of the RRSP as a result of the exercise of those rights must be included in the annuitant's income in the year of withdrawal pursuant to subsection 146(8).

Note, however, that ... Beaudoin … 2004 DTC 2414, held that the payment of funds from an RRSP to pay a debt extinguished by the order of discharge of a bankrupt does not constitute the receipt of a benefit by the bankrupt within the meaning of subsection 146(8), since the bankrupt does not receive any money or benefit as a result of that payment.

After finding that damages paid to an RRSP for loss of capital and income were not a premium paid to the RRSP and did not give rise to a s. 146(8) benefit to the annuitant, CRA went on to state:

Where the annuitant/beneficiary receives this amount, it is our view that the annuitant/beneficiary may direct it to the RRSP. In order to accept such tax treatment, the individual must act diligently to contribute the amount received to the RRSP to offset the losses incurred by the RRSP.

CCRA indicated that shares held in an RRSP could be transferred to a non-registered account of the annuitant, but that this would result in the FMV of the transferred shares being included in the annuitant’s income as a benefit. If the shares were capital property, any subsequent appreciation would result in a capital gain on the shares’ disposition.

After noting that where an RRSP provides a secured guarantee of a loan to the annuitant, the fair market value of the property given as security will be included pursuant to s. 146(10), CCRA went on to note that where a payment is made from the RRSP because of the exercise of a security interest to repay secured debts of the annuitant, although there is a benefit as per s. 146(1), it is not to be included in the annuitant's income pursuant to s. 146(8) by virtue of s. 248(28)(a) (so as to avoid double taxation under ss. 146(10) and (8)).

On the payment of an amount by the RRSP pursuant to its guarantee, the amount paid for federal source deduction purposes should be grossed up by the source deductions, e.g., if “the RRSP trustee must pay $8,000 to the financial institution and the federal source deduction is 10%, we are of the view that the total amount paid for source deduction purposes will be $8,888. Therefore, 10% of this amount will be remitted to the Agency, i.e. $888, and the balance of $8,000 will be paid to the financial institution to honour the guarantee.”

Regarding compensation paid by a broker to an RRSP to offset losses incurred by the trust as a result of the broker's management, CCRA indicated in its summary that there “is not a benefit if the amount is paid directly to the RRSP that suffered the loss.”

Where funds inside an RRSP (or RRIF) are used to pay administration fees, no benefit or amount is received by the annuitant as a consequence thereof.

The transfer of property of an RRSP to a court as a result of an interpleading will not result at that time in an income inclusion to the annuitant.

"The costs associated with redeeming mutual fund units in an RRSP trust are expenses of the trust and are properly paid for with trust funds." Accordingly, the amount shown on a T4RSP where mutual fund units are redeemed is the net amount rather than the gross amount of the redemption proceeds.

Discussion of application of ss.56(2) and 146(8) where an annuitant wishes to use some or all of the property in his RRSP to purchase a charitable gift annuity.

Bonus interest payments paid by a credit union directly to the annuitant of an RRSP would be included in the annuitant's income under s. 146(8). The credit union would not be penalized pursuant to s. 146(13.1), nor would the benefit be considered to be a prohibited advantage under s. 146(2)(c.4). The payment of the interest to the annuitant would result in the deposit made by the RRSP no longer being a qualified investment.

The estate of the deceased distributes $100,000 from his RRSP (which had not matured at the time of his death) in settlement of the claim against him of his separated wife.

CRA noted that s. 248(23.1)(a) would have the effect of deeming such transfer to her to occur as a consequence of his death, but would not also satisfy the requirement in s. 146(8.1) that she be a beneficiary of Mr. X's estate. Consequently, as she received the RRSP proceeds from the estate as a creditor rather than a beneficiary, the amount paid to her would not qualify as a refund of premiums that could be rolled over into her RRSP.

CRA also noted that this contrasted with the result that would have obtained if the deceased taxpayer had instead been the annuitant of a RRIF (see 2017-0707801C6), and had advised Finance of this inconsistency.

Neal Armstrong. Summaries of 7 October 2022 APFF Federal Roundtable, Q.13 under s. 248(23.1)(a).

(a) Where an unmatured RRSP is the subject of a particular legacy to the deceased annuitant's spouse and the RRSP proceeds are distributed by the RRSP issuer directly to the surviving spouse, does the CRA require Form T2019 to be filed?

(b) In a Quebec context, where the executor is directed by will (or the laws of intestacy) to pay the proceeds of a deceased annuitant's unmatured RRSP to the annuitant’s Spouse pursuant to a legacy by universal title, a universal legacy, a legacy by particular title (or pursuant to intestate succession), if the RRSP proceeds were, at the request of the deceased annuitant's executor, to be delivered by the RRSP issuer directly to the surviving Spouse (without first passing through an account in the name of the estate), would CRA be open to providing administrative relief so that the payment could qualify as a "refund of premiums" without requiring the filing of Form T2019?

In answering “yes” and “no” to these questions, CRA stated:

…(a)…

The joint election provided for in subsection 146(8.1) is required in all cases where the Spouse is entitled to the RRSP proceeds, not by virtue of a valid beneficiary designation, but rather as legatee or heir of the deceased annuitant, the RRSP proceeds then forming part of the deceased annuitant's estate. The joint election is therefore required even where the unmatured RRSP is the subject of a particular legacy to the Spouse under the deceased annuitant's will.

Since the executor exercises the seisin of the legatee by particular title at the formation of the estate, in such a case, the amount paid under the deceased annuitant's RRSP is part of the annuitant’s estate, with the result that such an amount would not qualify as a "refund of premiums" within the meaning of subsection 146(1), even though the proceeds of the RRSP are paid by the issuer of the RRSP directly to the surviving spouse in accordance with the instructions of the executor. … Thus, as specified in subsection 146(8.1), the executor and the Spouse will have to file Form T2019 jointly if they wish to designate the amounts that the estate received (or, as the case may be, is considered to have received) from the deceased annuitant's RRSP as a refund of premiums received by the Spouse.

…(b)…

Since in Quebec a beneficiary designation is only possible in limited circumstances, the T4079 Guide provides an administrative exception for this administrative relief that is only applicable in Quebec. Under this exception, if the provisions of the will clearly identify the beneficiary of the estate as the Spouse and the other conditions for administrative relief are satisfied, the T4RSP slip can be issued in the name of the Spouse as if the Spouse had been the beneficiary of the RRSP. The administrative relief for filing the T4RSP slip does not apply where the RRSP proceeds are paid to the Spouse rather than being transferred directly to an RRSP or RRIF under which the Spouse is the annuitant, or are used by the issuer to buy an eligible annuity for the Spouse. Consequently, the administrative exception applicable only in Quebec has no application in such circumstances.

The executor wished to have $50,000 of the value of the RRSP of the deceased (Mr. X) included in his income, and for the balance of $200,000 to be transferred on a rollover basis to his surviving spouse (Ms. Y). However, when the property in the RRSP was transferred to an estate account later in the year (on July 1, 2018), it had appreciated to $255,000. In December 2019, the executor paid $205,000 to Ms. Y, who contributed that amount to her RRSP. That amount was designated by the executor and Ms. Y on Form T2019 as a refund of premiums, so that Mr. X had a $50,000 inclusion in his terminal return.

Taking into account that an amount jointly designated under s. 146(8.1) is deemed to be received by an eligible beneficiary, is the income of $5,000 required to be included on the estate’s T3 return and shown on a T3 slip as distributed to the eligible beneficiary? CRA responded:

By virtue of subsection 146(8.1), where a deceased annuitant's RRSP amount is paid to the deceased's legal representative, and that amount would have been a refund of premiums if it had been paid to the beneficiary of the estate, that amount is deemed, to the extent it is so designated jointly by the legal representative and the individual in Form T2019, to be received by the beneficiary at the time it was so paid as a benefit that is a refund of premiums.

A "refund of premiums" within the meaning of subsection 146(1) includes inter alia any amount paid to the annuitant's spouse or common-law partner out of or under an RRSP where the annuitant died before the maturity of the plan and the amount is paid as a consequence of the death of the annuitant under the plan, other than a tax-paid amount in respect of the plan. The increase in the FMV of RRSP property determined after the date of death to December 31 of the taxation year following the death of the annuitant is generally not a "tax-paid amount" as defined in subsection 146(1) and could be a refund of premiums.

In the situation described, the sum of $205,000 jointly designated by the legal representative and the spouse, Ms. Y, on Form T2019 would be deemed to have been received by Ms. Y (and not by the legal representative) in respect of a benefit that is a refund of premiums. That amount should be included in computing Ms. Y's income for the 2018 taxation year under subsection 146(8) and paragraph 56(1)(h), being the taxation year in which the benefit is deemed to have been received by Ms. Y.

Where at the time of filing the T3 Trust Income Tax and Information Return, the election under subsection 146(8.1) has been made, the increase in the FMV of the RRSP property determined after the date of death that is a refund of premiums would not have to be reported in the T3 return of the estate.

CRA stated :

Where an amount under an unmatured RRSP of a deceased annuitant is paid to the deceased's legal representative and the surviving spouse is the beneficiary of the estate, we consider that the spouse did not receive the amount in the RRSP due to the annuitant's death and the payment does not constitute a refund of premiums as defined in subsection 146(1). In such a situation, subsection 146(8.1) deems the amount paid to the deceased annuitant's legal representative as being received by the surviving spouse as a benefit that is a refund of premiums, and not by the legal representative, to the extent that 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 it is designated jointly by the legal representative and the surviving spouse in prescribed form T2019 (footnote 1) filed with the Minister.

The amount qualifying as a refund of premiums is a benefit for the recipient spouse who receives it, or is deemed to have received it, and it must be included in computing his or her income pursuant to subsection 146(8) and paragraph 56(1)(h). An amount equal to the refund of premiums may be deducted in computing the spouse's income under paragraph 60(l) to the extent that it is paid by or on behalf of the spouse in the year or within 60 days after the end of the year as a premium under an RRSP, RRIF or for an eligible annuity of which the surviving spouse is the annuitant.

Mr. A left his entire estate to a spousal trust for his wife, Ms. A. After Mr. A's death, the trustee made a capital distribution as an encroachment on capital to Ms. A in an amount equaling the FMV of Mr. A's RRSP (being $100,000) immediately before his death and, thereafter, the executor of the estate and Ms. A jointly elected under s. 146(8.1) in the amount of $100,000. Before the end of the year, Ms. A contributed $100,000 from her own funds as a premium to her RRSP.

Can such election be made, and can Ms. A utilize the s. 60(l) deduction? CRA responded:

Subsection 248(25) provides that a person is beneficially interested for the purposes of the Act where the person has any right (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any person or partnership) as a beneficiary under a trust to receive any of the income or capital of the particular trust either directly from the particular trust or indirectly through one or more trusts. In such a case, that person is a beneficiary within the meaning of subsection 108(1).

We are of the view that subsection 146(8.1) would apply in the Particular Situation, as Ms. A is a beneficiary of Mr. A's estate.

The $100,000 that was deemed to be received by Ms. A in respect of a benefit that was a refund of premiums would be included in computing her income under subsection 146(8) and paragraph 56(1)(h) for 2006. Furthermore, Ms. A would be able to deduct under paragraph 60(l) in computing her income for 2006 the $100,000 that was paid before the end of 2006 as a premium to an RRSP under which she was the annuitant.

Mr. A, who died intestate holding an unmatured RRSP and other assets, left his spouse ("Mrs. A") and two children as heirs. If the children renounced their interest in the estate in favour of Mrs. A, could Mrs. A and Mr. A's legal representative elect under s. 146(8.1) to deem the amount paid out of Mr. A's RRSP to Mr. A's legal representative to be received by Mrs. A as a benefit that would be a refund of premiums? CRA responded:

Such renunciations could not be considered disclaimers for the purposes of the Act because they would be transfers of property from some of the intestate heirs (Children A) to Mrs. A and would not be a transfer as a consequence of Mr. A's death. However, if the renunciations of Mr. A's estate by the Children A had not been made for the benefit of someone, but had been legally valid outright renunciations that complied with the specifications of subsection 248(9), we are of the view that they could have been transfers as a consequence of Mr. A's death.

Under the terms of his will, Mr. A left all of his property to a spousal trust for his wife, Ms. A. After Mr. A's death in 2006, the trustee made encroachments of capital to Ms. A in an amount equaling the FMV of Mr. A's unmatured RRSP immediately before his death of $100,000. Thereafter, the executor of the estate and Ms. A jointly elected under s. 146(8.1) in the amount of $100,000. Before the end of 2006 Ms. A contributed $100,000 to her RRSP.

Regarding the availability of the s. 146(8.1) election, CRA stated:

[S]ubsection 146(8.1) would apply to an individual who is "beneficially interested", within the meaning of subsection 248(25), in the estate of a deceased RRSP annuitant who is not a direct beneficiary of the estate, as [here], where Ms. A has only an indirect interest in Mr. A's estate by virtue of the fact that she is a beneficiary of a trust that is itself a beneficiary of the estate.

The deceased, who had been required under a separation agreement to pay weekly amounts to his spouse in settlement of entitlement to compensatory benefits, died leaving an estate that included an RRSP. Regarding whether an amount be transferred from the deceased’s RRSP to the surviving spouse's RRSP could be considered a refund of premiums for the purposes of ss. 146(8.9) and 60(l), CRA provided an overview of ss. 146(8.1), 146(8.9) and 248(23.1)(a).

The annuitant of a registered retirement savings plan ("RRSP") died, leaving his 10-year-old son who was financially dependent for his support and who was his sole beneficiary. No beneficiary designation for the RRSP had been made in the plan or in his will. Following the death, the trustee of the RRSP made a lump sum payment to the executor of the estate equal to the value of the RRSP property (which the executor used to acquire an annuity with a term of 8 years), and the executor made a s. 146(8.1) election.

Could such election be made only by the executor? CRA responded:

[I]n a situation where the legal representative of the annuitant is the same as the legal representative of the beneficiary, Form T2019 may be signed by the same person but for and on behalf of both parties as provided for in the Act.

In finding that the joint election under s. 146(8.1) cannot be made by the executor and the surviving spouse of the deceased annuitant even though another person (in this case, the daughter of the annuitant) is named as the RRSP beneficiary in the will and is paid (or the executor is paid for distribution to her) such legacy, CCRA stated:

The condition that the amount qualify as a refund of premiums if it had been paid to the beneficiary would not be met since the beneficiary in this case is a child of the age of majority and not the annuitant's spouse or a child who was financially dependent on the annuitant before his death. Thus, the amount paid to the executor would not be a refund of premiums if it had been paid directly to the adult daughter by the trustee of the unmatured plan following the annuitant's death.

"Where the legal representative and the spouse as beneficiary of the deceased's estate, jointly direct that the amount that would otherwise be paid to the estate out of or under the deceased's RRSP ... be transferred by the payer directly to a RRSP ... or be used to acquire an annuity under which the spouse of the deceased is the annuitant, the Department would normally accept that such amount has been paid to the deceased's legal representative for purposes of subsection ... 146(8.1) ... . Consequently, provided that the deceased's legal representative and spouse have jointly designated in prescribed form with respect to any such amount, the spouse would be deemed to have received the amount in the year as a refund of premiums ... ."

The taxation year referred to is the taxation year of the estate in which the payment was received.

An individual, who made an excess RRSP contribution in 2015, dies in 2016. CRA noted that technically, in order for the executor to claim a s. 146(8.2) deduction in the terminal return for the excess contribution, there was required to be “a payment from the RRSP in respect of undeducted premiums of the taxpayer … received by the taxpayer in the year,” but then stated:

[T]he CRA generally accepts that an amount deemed to be received by a deceased annuitant under subsection 146(8.8) and included in the annuitant’s income for the year of death under subsection 146(8) … should be treated as a payment received by the annuitant for the purposes of subsection 146(8.2).

Thus, the deduction generally would be available (which was to be claimed directly in the terminal return without using a Form T746.)

In the following situations, can the taxpayer claim a deduction under s. 146(8.2) for the withdrawal of an excess (otherwise deductible) contribution made to the taxpayer’s RRSP?

(a) In 2016, the individual contributes the maximum deductible amount of $25,370 and then, later in the year out of inadvertence (and without the intention described in s. 146(8.2)(f)), contributes a further $30,000, so that there is a resulting cumulative excess amount (as per s. 201.2(1.1)) of $28,000. In order to cut off Part X.1 tax for 2017, the individual withdraws $30,000 in February 2017. However, also in 2017, the individual and employer contribute $26,010 to a group RRSP. Is the $30,000 withdrawal deductible under s. 146(8.2), and is the $26,010 contribution deductible under s. 146(5)?

(b) An individual makes an RRSP contribution that does not exceed the RRSP deduction limit for the year. However, later in the year, the individual wishes to withdraw the contribution and to not claim a deduction (for example, because of cash flow issues, or deciding that a TFSA contribution was preferable). If the conditions in ss. 146(8.2)(a) to (d) were satisfied, would s. 146(8.2)(e) preclude a deduction?

In finding that a deduction was not precluded in Situation, (a) and, perhaps, (b), CRA stated:

[T]he existence of an RRSP cumulative excess amount giving rise to Part X.1 tax is not a condition for the application of subsection 146(8.2). This provision can apply whether or not the annuitant is subject to Part X.1 tax at the time the payment is withdrawn from the RRSP.

…[T]he fact that, in situation (a), the payment received by the taxpayer in 2017 is more than the payment required to extinguish the tax under Part X.1 … [and] in situation (b), the taxpayer is not subject to tax under Part X.1 before receiving the payment would not in and of itself preclude the application of subsection 146(8.2).

…[U]nder [s. 146(8.2)(e)], if undeducted premiums have resulted in an overcontribution then, subject to paragraph 146(8.2)(f), the deduction will only be possible if such excess contribution was in fact made inadvertently. …

[I]n Situation (a), the $26,010 amount paid by the taxpayer to his or her RRSP after receiving the $30,000 amount would generally be deductible under subsection 146(5).

An individual, who made an excess RRSP contribution in 2015, dies in 2016. Where the time periods in s. 146(8.2) are met, can the executor complete the applicable forms (especially Form T746) in order that the deceased’s terminal return can benefit from the s. 146(8.2) deduction? CRA first indicated that s.146(8.2) requires inter alia that “a payment from an RRSP in respect of undeducted premiums of the taxpayer, be received by the taxpayer in the year,” but then stated:

[T]he CRA generally accepts that an amount deemed to be received by a deceased annuitant under subsection 146(8.8) and included in the annuitant’s income for the year of death under subsection 146(8) and paragraph 56(1)(h) should be treated as a payment received by the annuitant for the purposes of subsection 146(8.2). Thus, to the extent that all other conditions of subsection 146(8.2) are satisfied, the deduction provided under that subsection may be claimed in the deceased annuitant’s terminal return.

Respecting Form T746, it does not cover the situation where the annuitant has died. The executor of a deceased annuitant's estate … should simply indicate the amount claimed in line 232 of the terminal return of the deceased annuitant and use the space to the left of the line to indicate that it is a deduction for the refund of unused RRSP contributions.

An individual used a spousal or common-law partner plan for the purpose of making an "excluded withdrawal" within the meaning of s. 146.01(1), and subsequently repaid his "HBP balance" within the meaning of s. 146.01(1) through a contribution to a plan for which he was the sole individual to have paid premiums and the annuitant.

Must a withdrawal then made by the individual from his RRSP be included in his income under s. 146(8), or is the amount instead included in his spouse's income under s. 146(8.3). CRA responded (TaxInterpretations translation):

[S]ubsection 146(8.3), clearly limits its application to situations where the amounts withdrawn by the annuitant come from a plan for the benefit of the spouse or common-law partner. As a result … provided the amounts withdrawn are from an RRSP where only the annuitant paid premiums, the withdrawals would be included in the computation of the annuitant's income under subsection 146(8).

The taxpayer in Charrier v. Quebec (2010 EXP-2783) contributed $5,970 to his spouse's RRSP in 2005, which he deducted, and a year later the amount was withdrawn. The financial institution made the applicable source deductions and remitted the balance to the taxpayer's spouse. Later in the year, the spouses separated. Under the s. 146(8.3) attribution rule, the taxpayer was taxed on the amount of the withdrawal because they were not living separate and apart at the time of withdrawal. However, it was for his ex-spouse that the taxes were withheld at source. The Court of Quebec ruled in favor of the contributor in a decision animated more by considerations of fairness than by an analysis of the legislative provisions.

Does the tax treatment indicated above of withholding tax reflect the federal tax provisions? CRA responded:

[S]ubsection 146(8.3) specifies that where a withdrawal is made from an RRSP for the benefit of a spouse or common-law partner, where the spouses or common-law partners were not living separate and apart by reason of the breakdown of the marriage or common-law partnership, the taxpayer who has paid premiums to the taxpayer’s spouse's or common-law partner's RRSP will be required to include the amount withheld in computing the taxpayer’s income up to the amount the taxpayer contributed in the year or in one of the two preceding years. Where subsection 146(8.3) applies, subsection 146(8.6) allows the annuitant to claim a corresponding deduction so that two people do not have to include the same amount in computing their income. ...

[T]he deductions [under s. 153(1)(j)] are … made from the lump sum payment and designated as being for the account of the person receiving the amount, being the RRSP annuitant. No provision of the Act provides a link between the withholding tax on the payment to the annuitant and the attribution rule in subsection 146(8.3).

An individual, who made an excess contribution in 2015, dies in 2016. Will the excess contribution be added to the deceased’s income under ss. 146(8) and (8.8)? CRA responded:

Under subsection 146(8.8), where the annuitant of an RRSP dies before its maturity, the annuitant is deemed to have received, immediately before the annuitant’s death, as a benefit out of or under the RRSP, an amount equal to the fair market value ("FMV") of all the property of the RRSP at the time of death. … The fact that premiums paid to the RRSP prior to the time of death could not be deducted has no impact on the amount to be included.

When the annuitant died, the fair market value of the RRSP assets (a segregated fund) was $18,000. However, the contract provided a guaranteed value equal to the sum of the deposits made by the annuitant, which was $25,000. In finding that the deemed proceeds under s. 146(8.8) were $25,000, CCRA stated:

In a situation where there is a guaranteed amount to be paid by the plan upon the death of an annuitant, we are of the view that the fair market value of the plan's assets at the time of the annuitant's death cannot be less than that guaranteed amount. Thus, we consider the market value of the property in the plan to be the greater of the guaranteed amount and the value of the property held by the plan.

In finding that the fair market value of mutual fund units held by an RRSP would take into account redemption fees, RC stated that "if units of a fund cannot be transferred between persons dealing at arm's length but must be redeemed, we would expect that the fair market value of the units would be their value otherwise determined less any applicable redemption charges".

Where the estate of the deceased is the beneficiary of an RRSP and the deceased's spouse has an interest in the RRSP only by virtue of being a life tenant under the will, s. 146(8.8) will apply to include the fair market value of the RRSP in the income of the deceased.

Is the deduction provided under s. 146(8.9) discretionary when the surviving spouse is named sole beneficiary in an unmatured RRSP contract? CRA responded:

The amount of the reduction under subsection 146(8.9) is discretionary; that is, it may be less than the amount calculated under the formula.

Can an amount be deducted under s. 146(8.9) when the surviving spouse is designated in the contract as successor annuitant of a matured RRSP?

CRA indicated that for s. 146(8.9) to apply, an amount must otherwise be deemed received pursuant to s. 146(8.8) and an amount must qualify as a refund of premium which is not possible in the case where the annuitant dies after the maturity of the RRSP.

If the estate does not receive the T4RSP or T4RIF slip on behalf of the deceased annuitant within the prescribed time, can s. 146(8.9) or 146.3(6.2) still apply? CRA responded:

[W]here all the conditions set out in subsection 146(8.9) or subsection 146.3(6.2) are satisfied, an amount, not exceeding the amount deemed to be received under subsection 146(8.8) or subsection 146.3(6), may still be deducted in computing the deceased annuitant's income in the year of death, even if the T4RSP or T4RIF slip is not received by the deceased annuitant's estate within the prescribed time.

Where an annuitant dies prior to the maturity of an RRSP, the deceased annuitant's spouse is the beneficiary and the plan administrator does not complete a direct transfer of the entire RRSP refund of premiums under s. 60(l) to the RRSP of the spouse until subsequent to December 31 of the year following the year of death, a T4RSP supplementary slip with an amount equal to the fair market value of the property held in the plan will have to be issued in the year of death to the deceased annuitant. However, after December 31 of the year of transfer, the surviving spouse could contact the appropriate Tax Services Office to request that the terminal return of the deceased annuitant be amended to allow a deduction under s. 146(8.9) with respect to the fair market value of the property held in the plan and included in the deceased annuitant's terminal return.

RC's assessing policies may not apply if the disbursements out of the RRSP do not satisfy beneficial interests which are valid under provincial law.

Where the annuitant of an RRSP dies after maturity of the plan and the spouse is entitled to 1/2 of the property in the RRSP, no rollover is available because the spouse is not deemed to be the annuitant under the plan. S.146(8.91)(a) applies only when the spouse is to become the annuitant under the plan.

Where an amount paid by an RRSP for an annuity issued by a charity exceeds the fair market value of the annuity, the difference will be included in the income of the annuitant in the year of acquisition.

It is the Departmental practice not to apply the provisions of s. 146(9) to an annuitant where an RRSP has written a covered call option and the holder of the covered call option in fact exercises her right to purchase under the option.

RC does not apply s. 146(9) to the writing of covered call options by an RRSP.

S.146(9) will not be applied to the annuitant where a security of an RRSP is disposed of as a result of a covered call option previously written by the RRSP being exercised.

Where an RRSP holds a mortgage that is subject to proceedings pursuant to a power of sale, the RRSP should proceed in the same manner as any other reasonable person in the circumstances. Where business practice dictates awaiting the outcome of the power of sale proceedings, the same procedure should be followed by the RRSP.

Mr. A, a status Indian, who obtained rights in a registered pension plan through employment earnings that were exempted under s. 87 of the Indian Act, had such RPP funds transferred to his RRSP (“Trust A”) which, again at his direction, acquired units (valued by CRA as having a nil value), with Mr. A then receiving a loan from the cooperative.

After finding that the s. 87 Indian Act exemption did not apply to the amounts received by Mr. A, the Directorate stated:

Paragraphs 146(9)(a) and (b) have the effect of adding to the income of an annuitant under an RRSP trust the difference between the FMV of the property acquired by the trust and the consideration given for the property acquired … . Similarly, subsection 146(10) has the effect of adding to the income of an annuitant under an RRSP trust the FMV of any property of the trust used or permitted to be used by the trust as security when the property began to be so used … .

Before indicating that s. 207.1 applies to a qualified investment that has become a non-qualified investment, CRA stated:

As indicated in paragraph 28 of IT-320R3, subsection 146(10) is not applicable when a property was a qualified investment at the time the trust governed by an RRSP acquired the property but later on the property became a non-qualified investment. In such a case, the plan annuitant will not have to include in income an amount equal to the fair market value of the non-qualified investment.

Where an annuitant transfers property that is a non-qualified investment which is subject to s. 207.1(1) of the Act to another of his or her RRSPs, the transferred property will cease to be subject to s. 207.1(1) and will be subject to s. 146(10).

Regarding the tax consequences of an annuitant’s RRSP pledging its property as security for a personal loan, CCRA indicated:

• if a trust whose assets are valued at $15,000 allows all of its assets to be used as security for a loan of $10,000, the inclusion pursuant to s. 146(10) will be $15,000
• if the RRSP gives a secured guarantee, the fair market value of the property given as security will be included pursuant to s. 146(10) and the annuitant will be entitled to an equivalent deduction pursuant to s. 146(7) when the loan subject to the guarantee ceases to exist.
• where a payment is made from an RRSP because of the exercise of a security interest to pay off such secured debts, although there is a benefit as per s. 146(1), it is not to be included in the annuitant's income pursuant to s. 146(8) by virtue of s. 248(28)(a) (so as to avoid double taxation under ss. 146(10) and (8)).

An RRSP (apparently holding its cash in a bank account held on its behalf) goes into overdraft as a result of an administrative fee charged to it. CCRA stated:

[A] bank overdraft may constitute money borrowed from the trust or the use of property of the trust as security for a loan so that paragraph 146(4)(a) or subsection 146(10) could apply. … [T]here is no administrative relief that would allow these two provisions of the Act not to apply.

In the course of a general discussion of the consequences of an RRSP permitting its property to be used as security, CCRA drew a distinction between the consequences to a depositary and non-depositary RRSP, indicated that s. 146(12) rather than s. 146(10) applies to a depositary RRSP in this situation and then stated that:

[such] rules … do not apply in the case of a trust governed by an RRSP described in subparagraph (b)(i) of the definition of "retirement savings plan" in subsection 146(1). In that case, subsection 146(10) provides inter alia that where a trust governed by an RRSP uses or permits to be used any property of the trust as security for a loan, the fair market value of the investment or property used as security must be included in computing the income for the year of the taxpayer who is the annuitant under the plan.

By virtue of ss.146(6) and (10), there are generally no income tax implications for annuitants when foreign currency is disposed of within the same calendar year and there has been no fluctuation in the exchange rate. Accordingly, the "Agency will not apply these provisions where foreign currency is converted to Canadian currency or is used to acquire a qualified investment within a reasonable period of time (usually one month)".

A put option is a non-qualified investment. However, as the writing of a put option does not entail an acquisition of property, s. 146(10) does not apply unless, under the agreement, the RRSP is required to leave margin on deposit with a broker to cover the possible exercise of the option.

Where cash is deposited as margin with a broker then, notwithstanding that such deposit would not be a qualified investment under s. 204(e)(i), s. 146(10) will not be applied to the annuitant if the transaction is concluded within a few days. Similar considerations apply where the RRSP is required to leave cash as margin on deposit with a broker to cover the possible exercise of a put option that the RRSP has written.

Although real property is not a qualified investment for an RRSP, RC is prepared not to apply either s. 146(10) or 207.1(1) where an RRSP acquires real estate through foreclosure or other procedures that are necessary to protect the mortgage investment and as a result of default or other actions of the mortgagor, the original mortgage investment was a qualified investment, and the RRSP holds the real property in the trust for the sole purpose of disposing of it and in fact does so within a reasonable period of time (such as one year).

"It is our view that paragraph 146(4)(a) and subsection 146(10) of the Act do not apply where a RRSP buys shares payable on an instalment basis because an obligation to pay instalments does not constitute a loan or borrowed money with a relationship of lender and borrower between the parties."

The transfer, following the writing by an RRSP of a covered call option, of the underlying securities to a broker or a dealer until the option is exercised or expires will not be considered to be the borrowing of money on the security of those investments for the purposes of s. 146(10)(b).

RC will not apply s. 146(10) or s. 207.1(1) if an RRSP acquires real property as a result of foreclosure of a mortgage that was qualified property as a consequence of the default of the mortgagor, provided that the trust deed disposes of the property within a reasonable period (such as one year).

1. An RRSP trust, which holds shares of Company A that are a non-qualified investment, receives a stock dividend comprising additional shares of the same class. 2. The RRSP trust holds shares of Company X, which are a qualified investment, and receives thereon a dividend in kind of shares of Company Y that are a non-qualified investment. Does s. 146(10.1) or 207.04(1) apply? CRA responded:

In Scenario 1, because the shares of Company A are non-qualified investments, the RRSP trust will be subject to Part I tax pursuant to subsection 146(10.1)… in respect of its income from the stock dividends paid by those shares. In addition, the annuitant of the RRSP will be liable for the tax payable on non-qualified investments… pursuant to subsection 207.04(2)…, the… tax payable is equal to 50% of the fair market value of the additional Company A shares at the time they are received… .

In Scenario 2, the annuitant of the RRSP will be liable to pay the 50% tax payable under subsection 207.04(1) of the Act subject to a possible refund of the tax pursuant to subsection 207.04(4) of the Act as a result of the RRSP trust's acquisition of the non-qualified Company Y shares. Because the shares of Company X are qualified investments, the RRSP trust will not be required to pay Part I tax under subsection 146(10.1)… . in respect of… the in-kind dividend of Company Y shares;

An RRSP acquired shares after March 23, 2011, which were listed on a foreign designated stock exchange and were worth $43 per share, but then became delisted (and, thus, non-qualified investment for the RRSP) when they were worth $11. They then were sold for $29 per share.

In intimating that the RRSP had a gain of $18 per share which was taxable under s. 146(10.1), CRA referred to the rule in draft s. 207.01(6) deeming the shares to have been disposed of and reacquired at $11.

In order to render this retirement savings plan non-seizable under the laws of Quebec, the holder of an RRSP plan issued by a trust company or other issuer will transfer that RRSP to a trust formed for his exclusive benefit. CRA indicated that this would result in an income inclusion under s. 146(12)(b) to the individual, given that qualifying RRSP cannot have a trust as the annuitant.

In the course of a general discussion of the consequences of an RRSP permitting its property to be used as security, CCRA drew a distinction between the consequences to a depositary and non-depositary RRSP, and stated, regarding the former:

Where the property of a depositary RRSP as defined in subparagraph (b)(iii) of the definition of "retirement savings plan" in subsection 146(1) is given as security, the Agency considers that the RRSP has been amended and that the amended RRSP no longer meets the conditions for registration. Paragraph 146(12)(a) provides that such an RRSP is deemed no longer to be an RRSP and has ceased, at that time, to be registered. As stated in paragraph 2 of Interpretation Bulletin IT-415R2, paragraph 146(12)(b) provides that the fair market value of the property held in an RRSP at the time it ceased to be registered must be included in the annuitant's income.

CCRA went on to indicate that such rules do not apply to a non-depositary RRSP, to which s. 146(10) would instead apply.

Mr agreed in his separation agreement with Mrs to transfer to her the property in his RRSP. However, he died before the transfer was made. Does CRA still consider that s. 146(16) does not apply following death? CRA responded:

The CRA continues to be of the view that a transfer under paragraph 146(16)(b) is not possible where the annuitant or the former common-law partner dies before the transfer referred to in this paragraph is completed.

When queried on this, a Finance representative stated:

The Department of Finance is ready to consider the issue identified in the question to determine whether the rules give rise to anomalies in certain circumstances in tax policy terms, in the context of its on-going revision of the ITA rules.

The deceased, who had been required under a separation agreement to pay weekly amounts to his spouse in settlement of entitlement to compensatory benefits, died leaving an estate that included an RRSP. In indicating that no amount could be transferred from the taxpayer's RRSP to the surviving spouse's RRSP on a tax-free basis pursuant to s. 146(16, CRA stated:

[S]ubsection 146(16) does not apply where one of the spouses or former spouses has died.

The rollover in s. 146(16) was available to spouses separate as to bed and board.