On the intestacy of the taxpayer in 2010, who was a member of a registered pension plan ("RPP") and had made no valid beneficiary designation at the RPP level, the estate received a net amount of $110,000 under the RPP ($200,000 less withholding taxes of $90,000), which was distributed equally to the three adult children.
Is there an obligation to withhold taxes when making a lump sum payment following the death of a member of an RPP either to the beneficiary of the RPP or to the member’s estate, given that no payment has been made to an employee as provided in ITR ss. 103(4) and (5), which concern in particular lump-sum pension payments. Where there has been a withholding, can the taxes withheld at source on the lump sum payment can be allocated among the various taxpayers in the same proportions as the amounts on which they are taxed? CRA responded:
[U]nder 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 lump sum payment made under a pension fund or superannuation or pension plan on the death of an employee or former employee constitutes a "lump sum payment" for the purposes of ITR subsection 103(4). … [C]onsequently … the administrator of an RPP who pays, to a member's estate, a lump sum payment of a superannuation or pension benefit as a result of the member's death, must withhold tax pursuant to ITR subsection 103(4).
… [N]o provision … allows allocations or designation of tax deductions between a trust and its beneficiaries. When the estate completes its …T3 … the tax withheld will be taken into account in determining the balance owed by the estate or [its] refund … .
A similar result would apply to amounts paid on death out of a DPSP.