Section 146.3

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".

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).

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.

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.

The last annuitant of a trusteed registered retirement income fund (“RRIF”) died in 2018, and that annuitant’s spouse, who was the sole designated beneficiary under the RRIF, died before the distribution of RRIF proceeds, which was made to the spouse’s estate in 2020.

Because no amounts were paid to the designated beneficiary, there was no designated benefit, so that pursuant to s. 146.3(6), the full FMV of all the RRIF property held at the time of the annuitant’s death was included in the income of the annuitant in the year of death, rather than being included in the income of the surviving spouse.

When the annuitant died, the RRIF trust’s tax-exempt status was extended consistently with s. 146.3(6.2) – B and s. 146.3(3.1) until the end of the year immediately following the year of death (i.e., until the end of 2019), with the trust thereafter becoming taxable. However, the RRIF trust may claim a deduction in computing its income for any income earned after such exempt period that is actually paid to a beneficiary of the trust – so that the RRIF trust can fully deduct in computing its 2020 income any income it earned in 2020 that was paid to the spouse’s estate.

The spouse’s estate will include in computing its income for 2020 the amount it received out of the RRIF in 2020 less the portion that is included in the annuitant’s income for 2018. Thus, the appreciation between the date of the annuitant’s death and the distribution date is included in the income of the spouse’s estate for 2020 and the FMV of the RRIF property at the date of the death is included in the annuitant’s income for 2018.

Under s. 146.3(6), the last annuitant under a RRIF is deemed, upon death, to have received, immediately before death, an amount out of or under a RRIF equal to the FMV of the property of the fund at the time of the death. The definition of “pension income” in s. 118(7) – (a)(iii) refers inter alia to “a payment out of or under a registered retirement income fund.”

CRA did not consider that this wording was sufficient to render a payment deemed by s. 146.3(6) to have been paid out of a RRIF to thereby qualify as pension income, stating:

For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.

… [A]n amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.

When Monsieur died in July 2010, his surviving wife (Madame) had a RRIF of $10,000. Monsieur had never had an RRSP or RRIF. Does s. 248(23.1)(b) deem Monsieur to own half of Madame's RRIF, or $5,000, and to have withdrawn that amount immediately prior to his death?

In rejecting this interpretation, CRA stated:

[P]aragraph 248(23.1)(b) only modifies, by a presumption, the time at which the property is transferred, distributed or acquired by the deceased's estate. … [T]hat provision does not have the effect of allowing the annuitant of a RRIF to share with the annuitant’s deceased spouse or common-law partner the tax burden applicable to the annuitant because of the RRIF.

It follows that subsection 146.3(6) cannot be applied as a result of the death of Monsieur since he was not, immediately before his death, the last annuitant under a RRIF.

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.

Where a RRIF is the subject of a specific bequest made to the deceased annuitant's spouse under a Quebec will and the RRIF proceeds are distributed by the RRIF issuer directly to the surviving spouse, CRA considers that the RRIF proceeds passed through the estate rather than coming directly out of the RRSP, as required under the “designated benefit” definition. Accordingly, in order for the surviving spouse to be able to transfer the RRSP proceeds tax-free to that survivor’s RRSP, CRA requires that an election under s. 146.3(6.1) be made (on Form T1090).

The deceased died with an RRSP valued at $250,000. Later in the year, when the RRSP had appreciated to $255,000, the property in the RRSP was transferred to an estate account. The executor paid $205,000 (including $5,000 respecting the appreciation in the RRSP) to the surviving spouse (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 the deceased Mr. X had a $50,000 inclusion in his terminal return.

CRA essentially accepted this treatment of the $5,000 of income, so that it could be eligible for treatment under the refund of premiums and s. 146(8.1) designation rules, and be rolled over into Ms. Y’s return. In indicating that similar rules applied to RRIFs, CRA stated:

Where a legal representative of the deceased last annuitant of a RRIF receives a designated benefit, subsection 146.3(6.1) provides that the designated benefit is deemed to be received by the individual out of or under the fund at the time it is received by the legal representative and not to be received out of or under the fund by any other person.

Paragraph (a) of the definition "designated benefit" in subsection 146.3(1) provides that amounts paid out of or under a RRIF after the death of the last annuitant to the legal representative of that annuitant may be jointly designated on a Form T1090 filed with the Minister by the legal representative and the individual where the amounts paid were a "refund of premiums" as defined in subsection 146(1) and they were paid to the individual out of or under the RRIF and if the RRIF had not matured before the death.

Consequently, the amount that is jointly designated as a designated benefit should be reported by the individual on the individual’s income tax return in the year the payment was received by the legal representative, pursuant to subsection 146.3(5) and (6.1) and paragraph 56(1)(t).

In a situation where, at the time of filing the T3 estate return, an election under the definition of "designated benefit" in subsection 146.3(1) has been made, the increase in the FMV of the RRIF property determined after the date of death that is a designated benefit would not have to be reported in the T3 estate return.

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)… .

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).

All the funds in the RRIF of the deceased annuitant were transferred for the benefit of the financially dependent child of the deceased so that, pursuant to s. 146.3(6.1), the total designated benefit was included in the child’s income under s. 146.3(5). In confirming that the child could transfer the entire amount of the designated benefit to the child’s RRSP, the Directorate stated:

[A]mounts deemed to be received from the RRIF by the deceased annuitant by reason of subsection 146.3(6) constitute amounts received for the purposes of subsection 146.3(5). …

Consequently, this amount must be taken into account in determining Variable C in the formula in subsection 146.3(6.11).

Monsieur, who died in November, bequeathed all his RRIF to his surviving spouse. In 2016-0651711C6 F, CRA indicated that even if Monsieur had withdrawn the minimum amount before his death, if the transfer of the RRIF to the surviving spouse was not effected until the subsequent year, the amount which could be transferred free of tax was reduced by the minimum amount for that subsequent year by virtue of the s. 146.3(6.11) formula. This reduction would not occur if the transfer occurred in the year of death.

(a) In computing the minimum amount for that subsequent year respecting the RRIF of the deceased, should one use the age of the deceased on January 1 of the calendar year of his death, his age on January 1 of the subsequent year or the age of the surviving spouse on January 1 of the year of the transfer to her RRIF or RRSP?

(b) Assuming that the death occurred before the deceased could contribute the minimum amount for the year of death, but the transfer of his RRIF to the surviving spouse was not made until the following calendar year, does the minimum amount impact on the RRIF of the deceased occur once, namely, only in the year subsequent to that of death?

CRA responded:

(a)

Under Element B of the definition of "minimum amount" in subsection 146.3(1), the prescribed factor can correspond to the age of the first annuitant under the RRIF, or if the first annuitant so elects before the issuer makes a payment out of the RRIF, the age of the spouse or common-law partner at the time of the election. The prescribed factor for the year is the factor in the table, as applicable, in subsections 7308(3) and (4) of the Income Tax Regulations that corresponds to the age in whole years attained by the individual at the beginning of that year or that would have been so attained by the individual if the individual had been alive at the beginning of that year.

…[F]or purposes of calculating the eligible amount determined under subsection 146.3(6.11), the taxation year referred to in that subsection is the taxation year referred to in paragraph 60(l), i.e., the year of the inclusion of the designated benefit in computing the income of the spouse or common-law partner income under subsection 146.3(5).

Thus, in a situation where the prescribed factor is the age of the first annuitant of the RRIF, the minimum amount for the year, as set out in B and C of the formula in subsection 146.3(6.11), is based on the age in whole years that the deceased annuitant would have attained at the beginning of the year had he or she been alive in the taxation year in which the designated benefit was included in computing the income of the spouse or common-law partner.

(b)

There is … no requirement for a RRIF issuer to pay the minimum amount by withdrawing from a retirement income fund after the death of the last annuitant. …

Where the designated benefit is received by the spouse or common-law partner in the year following that of the death of the last annuitant of a RRIF, the eligible amount will be equal to the designated benefit after deducting the minimum amount to be withdrawn from the RRIF for the year in which the benefit is received.

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.

When asked to explain its position that s. 146.3(6.2) cannot operate to exclude value of a deceased’s RRIF from his income and include that amount in the income of his surviving spouse or common-law partner (”Spouse”) or her estate where the Spouse was not alive at the time of the payment of the amounts in question out of the RRIF of the deceased, CRA indicated that such an amount could not qualify under either para. (a) or (b) of the “designated benefit” definition in s. 146.3(1).

• Regarding para. (a), the joint designation referred to therein was required to be made jointly by the deceased annuitant's legal representative and the Spouse, and could not be made with the deceased Spouse's legal representative.
• In order for para. (b) to be satisfied “the amounts must be paid directly to the Spouse” and not to the Spouse’s estate.

Is the deduction provided under s. 146.3(6.2) discretionary when the surviving spouse is named sole beneficiary in an unmatured RRIF contract? CRA responded:

The amount of the reduction under subsection 146.3(6.2) is discretionary, i.e., it may be less than the amount calculated under the formula.

Can an amount be deducted under s. 146.3(6.2) when the surviving spouse is designated in the contract as successor annuitant of a matured RRSP or a RRIF? CRA stated:

[S]ubsection 146.3(6.2) … is not applicable in such a situation since no amount is otherwise deemed to be received by the deceased annuitant under subsection 146.3(6) and, in addition, the amounts paid to the Spouse under the RRIF will not be designated benefits,

If the estate does not receive the T4RSP or T4RIF slip on behalf of the deceased annuitant within the prescribed time, can subsection 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 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.

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).

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.

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.”