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.
Will the daughter be able to contribute $140,000 to her RRSP and deduct it under paragraph 60(l) if the estate makes a capital distributes to her of the amount of the withholding? After discussing the s. 104(27) designation to preserve the character of such payment as being out of the RPP, CRA stated:
Under paragraph 60(1), where a taxpayer is the child or grandchild of a deceased individual and was financially dependent on the individual because of a mental or physical infirmity, and receives a payment under an RPP as a consequence of the death of the individual, the taxpayer may deduct in computing the taxpayer’s income the amount included in computing the taxpayer’s income an amount that the taxpayer pays as a premium out of or under an RRSP of which the taxpayer is the annuitant. The amount that may be deducted shall not exceed the sum of different amounts, one of which is the payment that the taxpayer received out of or under an RPP as a consequence of the death of an individual and that was included in computing the taxpayer’s income for the year. If no other amount described in subparagraph 60(l)(v) is included in computing the taxpayer's income, we are of the view that the maximum amount that may be deducted under paragraph 60(l) is the portion of the payment that the taxpayer received under an RPP as a consequence of the death of an individual and which is included in computing the taxpayer’s income for the year. For this purpose, the presumption in paragraph 104(27)(c) applies to determining whether the payment is described in clause 60(l)(v)(B.01). …
We are not aware of any provisions of the Act permitting the division or allocation of tax withholding between a trust and its beneficiaries.