The will of a deceased taxpayer, who had been a member of a registered pension plan ("RPP"), provided for the bequest of all his property to his dependent minor daughter, with an infirmity and six years of age, as sole legatee. All such bequeathed property was to be retained in the estate until she attained 25 years, but with rights of encroachment by the executor. In the year of the death, the deceased's RPP will pay the estate $140,000 as a lump sum under the RPP.
Can the full $140,000 to be received by the daughter as a lump sum from the RPP be transferred directly to a RRSP without withholding at source? After discussing the s. 104(27) designation to preserve the character of such payment as being out of the RPP, CRA stated:
Subsection 103(4) of the … ITR … provides for the withholding rates that apply where a payment is made in the form of a "lump sum payment" by an "employer" to an "employee". For these purposes, under ITR subsection 100(1), “employer" means any person paying "remuneration", "employee" means any person receiving "remuneration" and "remuneration" includes any payment that is in respect of a superannuation or pension benefit. Under ITR paragraph 103(6)(a), a payment described in subparagraph 40(1)(a)(i) or (iii) or paragraph 40(1)(c) of the Income Tax Application Rules (footnote 2) constitutes a "lump sum payment" for the purposes of ITR subsection 103(4). A single payment made out of a superannuation or pension plan on the death of an employee or former employee is a payment described in subparagraph 40(1)(a)(i ) of those Rules. We are therefore of the view that the administrator of an RPP must withhold income tax in accordance with the provisions of ITR subsection 103(4) when making a direct payment to the RRSP of a minor child, who is an heir of the estate of a member, of a single payment in respect of a superannuation or pension benefit as a result of the member's death.