Principal Issues: [TaxInterpretations translation] Application of paragraph 248(23.1)(b) in a particular situation.
Position: General comments.
Reasons: Paragraph 248(23.1)(b) only applies to presumptively change the timing of the transfer and does not have the effect of permitting direct transfer to an RRSP or a RRIF of the deceased where no other provision of the Act allows it.
Financial Strategies and Financial Instruments Roundtable-- 2010 APFF Conference
Question 14
RRSP or RRIF on death and application of subsection 248(23.1) for RRSP transfer
Paragraph 248(23.1)(b) provides as follows:
“Transfers after death
(23.1) Where, as a consequence of the laws of a province relating to spouses’ or common-law partners’ interests in respect of property as a result of marriage or common-law partnership, property is, after the death of a taxpayer,
[...]
(b) transferred or distributed to the taxpayer’s estate, or acquired by the taxpayer’s estate, the property shall be deemed to have been so transferred, distributed or acquired, as the case may be, immediately before the time that is immediately before the death.”
In that regard, we would like to know the position of the CRA in the following situation:
Two persons were married in Quebec before July 1, 1970, under the legal regime of community of movables and acquests [community of property]. Madame, retired, had a registered retirement income fund ("RRIF") of $10,000. Monsieur, retired, had never contributed to a registered retirement savings plan ("RRSP") and had never opened an RRSP account. He did not have a RRIF either. The couple had modest incomes. Each spouse received the Old Age Security pension and a retirement pension under the Québec Pension Plan. They had no other income so that they received the guaranteed income supplement.
Monsieur died in July 2010. Monsieur’s income for the year of death was not sufficient to use his basic personal credits.
In Quebec, the death of a spouse dissolves the marriage of the parties (Civil Code of Quebec, Article 516). As a consequence of the death, the family patrimony and the matrimonial regime become shareable (Civil Code of Québec, Articles 416, 465 and 492).
Assuming that all the property is held in co-ownership except the RRIF, the estate would be a creditor following the partition of the family patrimony or matrimonial regime.
Pursuant to paragraph 248(23.1)(b), whether by the partition of the family patrimony (payment of the debt in kind, Civil Code of Québec, Art. 419) or by the partition of the matrimonial regime that existed between the spouses (Civil Code of Lower Canada, "undivided partition", Art. 1361,1363, and 1425f), it is possible to affirm that Monsieur would be deemed to own half of Madame’s RRIF immediately before the moment immediately before his death.
Consequently, under subsection 146.3(6), Monsieur would be deemed to have received, immediately before his death, an amount out of his RRIF equal to the fair market value (FMV) of the RRIF property at the time of death. In our example, Monsieur would thus be deemed to own half of Madame's RRIF, or $5,000, and would be deemed to have withdrawn that amount immediately prior to his death.
Also in our example, the addition of that taxable amount in Monsieur's final return would allow him to use his otherwise lost basic personal credits.
For Madame as survivor, assuming that $5,000 was paid to her by the estate, that amount would become non-taxable capital. As a result of the transfer, Madame's RRIF would be smaller, so that the minimum amount to be withdrawn from her RRIF each year would be reduced, which would allow her to receive an additional amount for the Guaranteed Income Supplement.
Unfortunately, given that Monsieur had a RRSP or a RRIF, it is currently administratively impossible to transfer half of the RRIF from Madame to a RRIF established in the name of Monsieur.
In particular, the estate cannot open a new RRIF account and subsection 146.3(14) only applies to transfers between spouses when the marriage fails.
Questions to the CRA
Are the investments that make up an individual's RRSP or RRIF "property" for the purposes of subsection 248(23.1)?
Can the CRA comment on the issue described above with respect to the application of subsection 248(23.1) in the context of the situation under review?
CRA Response
Paragraph 248(23.1)(b) applies where, under the laws of a province respecting the right of spouses or common-law partners to property arising out of marriage or common-law partnership, property is, after the death of a taxpayer, transferred or distributed to, or acquired by, the taxpayer's estate.
Where these conditions are met, paragraph 248(23.1)(b) only modifies, by a presumption, the time at which the property is transferred, distributed or acquired by the deceased's estate. In our view, that provision does not have the effect of allowing the annuitant of a RRIF to share with the annuitant’s deceased spouse or common-law partner the tax burden applicable to the annuitant because of the RRIF.
It follows that subsection 146.3(6) cannot be applied as a result of the death of Monsieur since he was not, immediately before his death, the last annuitant under a RRIF.
If Madame only has her RRIF to pay her debt to the estate of Monsieur and she must withdraw from her RRIF the sums necessary for that purpose, those sums will constitute a taxable benefit to her which she must include in computing her income under subsection 146.3(5) and paragraph 56(1)(t). It appears to us that in such a situation, it is the sums or property thus withdrawn from the RRIF that will constitute property transferred to the estate.
Mélanie Beaulieu
(613) 957-9226
October 8, 2010
2010-037195.
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Under subsection 148(22) of the Legislative Proposals to Amend the Income Tax Act and Related Legislation to Effect Technical Changes and to Provide for Bijural Expression in that Act, published by the Department of Finance on July 16, 2010, the word "attributed" in subsection 248(23.1) will be replaced by the word "distributed".