Principal Issues: An individual has agreed to transfer to his former spouse or common law partner (ex-spouse) a capital property and an amount from his/her RRSP in settlement of rights arising out of, or on the breakdown of, their marriage or common-law partnership but the individual dies before the transfers were made.
1) Does paragraph 146(16)(b) apply to the transfer of an amount from an individual’s RRSP to his/her ex-spouse RRSP?
2) Does subsection 73(1) apply to the transfer of the capital property to the ex-spouse?
Position: 1) No
2) No
Reasons: 1) Paragraph 146(16)(b) does not apply after the death of the transferor annuitant or the ex-spouse.
2) In the situation described, the transfer must occur while both ex-spouses are alive.
ROUNDTABLE ON TAXATION OF FINANCIAL STRATEGIES AND INSTRUMENTS, OCTOBER 7, 2016
2016 APFF CONFERENCE
Question 5
Subsections 146(16) and 73(1)
Mr and Mrs are former spouses or common-law partners ('Former Spouses'). They have a written separation agreement whereby Mr owes $500,000 to Mrs and he has committed to pay her by transferring to her a capital property with a value of $300,000 and $200,000 held in his registered retirement savings plan ("RRSP"). According to subsections 146(16) and 73(1), the assets in question can therefore be transferred tax-free to Mrs.
Mr dies before being able to make the transfers. Subsections 146(16) and 73(1) apply only when the Former Spouses are alive. The CRA also commented on subsection 146(16) in a similar situation (Technical Interpretations 2004-0073441E5 (footnote 1) and 2011-0418821E5 (footnote 2)).
At the time of death, Mrs was no longer Mr’s spouse or common-law partner. The definition of refund of premiums in subsection 146(1) and subsection 70(6) (transfer or distribution to spouse or common-law partner) do not apply on a transfer to a Former Spouse even if the transfer is in settlement of the rights arising out of their union.
It seems therefore that the tax rollover would not no longer be possible and that the deceased will be subject to tax on the transferred property and then and remit after-tax amounts to Mrs.
Question to CRA
Does CRA still consider that ss. 146(16) and 73(1) do not apply following death?
CRA response
RRSP transfer
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.
Capital property transfer
Subsection 73(1) permits a tax deferral on the transfer of a capital property if the requirements of this subsection are met. In particular, any particular capital property of an individual (other than a trust) is required to be transferred in circumstances to which subsection 73(1.01) applies. According to the definition of trust in subsection 248(1), an estate is a trust. Accordingly, since Mr. died before having completed the transfer of the capital property, that transfer instead was effected by his estate, which is a trust and does not comply with the requirements of subsection 73(1).
Catherine Ayotte
(613) 670-8897
October 7, 2016
2016-065172
FOOTNOTES
Due to our system requirements, the footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Technical Interpretation 2004-0073441E5, June 1, 2014.
2 CANADA REVENUE AGENCY, Technical Interpretation, 2011-0418821E5, November 14, 2012.