Administrative Policy
2020 Ruling 2020-0848231R3 F - Rollover of RRSP proceeds to a lifetime benefit trust.
Background
The will of the deceased provided for the creation of a testamentary trust for the Beneficiary (the adult son of the deceased who, due to his psychological condition was not able to support himself) which provided that the Beneficiary was, during his lifetime, the sole beneficiary of the such Trust, with the residue to be distributed in accordance with the will, and which qualified as a "lifetime benefit trust."
Proposed transactions
- Pursuant to the will the Executors will request that the RRSPs of the deceased be wound up and will transfer all RRSP monies to the Trust established pursuant to the Will, which will qualify as a "lifetime benefit trust" in accordance with s. 60.011(1).
- The Executors and Beneficiary will file with the Minister (together with the deceased's final return and the Beneficiary's income tax return), in respect of each of the RRSPs, a joint designation under s. 146(8.1), so that all amounts paid by the RRSPs to the Executors are deemed to have been received by the Beneficiary as a refund of premiums.
- Within the time periods set out in the preamble to s. 60(l), the Trust will acquire an annuity satisfying the conditions in s. 60.011(2)(a).
- The beneficiary will elect in his return to have s. 60.011(3)(b)(ii) apply to the amount paid to acquire the annuity.
Rulings
The amounts jointly designated per 1 above will be deemed to be refunds of premiums in accordance with s. 146(8.1), and will be included in computing the Beneficiary's income pursuant to s. 146(8).
Such amount may be deducted, to the extent permitted by s. 146(8.9) – and the Executors may request a reassessment of the final return of the deceased if necessary to take these deductions into account.
The amount paid by the Trustees to acquire the annuity will be deductible by the Beneficiary to the extent permitted by s. 60(l), taking into account the provisions of s. 60.011(3).
During the lifetime of the Beneficiary, each payment received under the annuity by the Trust will be included in his income rather than the Trust’s income pursuant to ss. 56(1)(d.2) and 75.2.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 75.2 | annuity purchased by Hansen trust included in income of beneficiary rather than of Hansen trust | 152 |
Subsection 60.011(1)
Administrative Policy
3 December 2020 External T.I. 2019-0823751E5 - Lifetime Benefit Trust
In response to requested clarification concerning the meaning of “mental infirmity” and the consequences of annual distributions from a lifetime benefit trust that are immediately deposited into a “Henson Trust”, as well as the final distribution of remaining property of the trust following the death of the infirm beneficiary, CRA stated:
The determination of mental infirmity for purposes of the first condition above is a question of fact as this term is not defined in the Act. The provision does not apply to a physically infirm dependant unless there is also a mental infirmity, and it does not require that the infirm individual be eligible for the disability tax credit. In addition, it must be possible to clearly demonstrate a causal connection between the mental infirmity and the dependence of the child or grandchild for support. …
[D]epending on the circumstances surrounding subsequently deposited amounts, these payments could possibly contravene the requirements under paragraph 60.011(1)(b) … .
[T]he general trust rules found in subsections 107(1) and (2) will apply to distributions of a lifetime benefit trust in determining: (i) the adjusted cost base and the proceeds of disposition of the capital interest in the trust disposed of by the beneficiary; and (ii) the cost of the property acquired by the beneficiary in satisfaction of his or her capital interest in the trust.