Principal Issues: Where the annuitant of an unmatured RRSP dies without having withdrawn over-contributions he made to the RRSP in the preceding year, whether the deceased annuitant's legal representative may claim a subsection 146(8.2) deduction against the amount included in the deceased annuitant's income pursuant to subsections 146(8) and (8.8)?
Position: Generally, yes, provided that all the other conditions are satisfied.
Reasons: Although subsection 146(8.2) requires, inter alia, that the annuitant receives a payment from an RRSP, the CRA generally accepts that an amount deemed received as a benefit out of or under an RRSP pursuant to subsection 146(8.8) be considered as a payment received from an RRSP for the purposes of subsection 146(8.2).
XXXXXXXXXX 2017-068500 Mélanie Beaulieu October 23, 2017
Dear Sir,
Subject: RRSP excess contributions and annuitant's death
This letter responds to your fax of January 24, 2017 regarding the deduction provided under subsection 146(8.2) of the Income Tax Act (the "Act"). Unless otherwise indicated, all statutory references herein are to provisions of the Act.
In particular, you wish to determine whether the deduction provided under subsection 146(8.2) can apply in a situation where an individual over-contributed to the individuals registered retirement savings plan ("RRSP") in a taxation year and died in the following taxation year. The excess premiums could not be deducted by the individual by virtue of subsection 146(5). At the time of the individual's death, the undeducted premiums were still in the RRSP.
You asked us to confirm that the undeducted premiums would be included in the computation of the individual's income for the taxation year of death by virtue of subsections 146(8) and (8.8), subject to the rules in paragraph 146(8.9). You also asked us if, to the extent that the time periods in subsection 146 (8.2) were met, would it be possible for the executor of the deceased's estate to complete the appropriate forms (including Form T746, Calculating Your Deduction for Refunds of Unused RRSP, PRPP and SPP Contributions) after the individual's death in order for the individual to benefit from the deduction provided under subsection 146(8.2) in computing the individual’s net income for the year of death.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Under subsection 146(8.8), where the annuitant of an RRSP dies before the maturity of the plan, the annuitant is deemed to have received, immediately before the annuitant’s death, as a benefit out of or under the RRSP, an amount equal to the fair market value ("FMV") of all the property of the RRSP at the time of death. Consequently, in the year of death, this amount must be included in computing the income of the deceased annuitant under subsection 146(8) and paragraph 56(1)(h). Subject to the rules set out under subsection 146(8.9), the amount to be included depends solely on the FMV of the RRSP property at the time of death. The fact that premiums paid to the RRSP prior to the time of death could not be deducted has no impact on the amount to be included.
Under the conditions in subsection 146(8.2) for its application to a taxpayer in a particular taxation year (which must be one of the years referred to in paragraph 146(8.2)(c)), it is necessary in general terms that a payment from an RRSP in respect of undeducted premiums of the taxpayer, be received by the taxpayer in the year and that such payment is otherwise included in computing the taxpayer’s income for the year. If, as in the described situation, a taxpayer dies before the taxpayer has withdrawn the undeducted premiums, the taxpayer can no longer receive any payment related to these premiums. However, the CRA generally accepts that an amount deemed to be received by a deceased annuitant under subsection 146(8.8) and included in the annuitant’s income for the year of death under subsection 146(8) and paragraph 56(1)(h) should be treated as a payment received by the annuitant for the purposes of subsection 146(8.2). Thus, to the extent that all other conditions of subsection 146(8.2) are satisfied, the deduction provided under that subsection may be claimed in the deceased annuitant’s terminal return.
Respecting Form T746, it does not cover the situation where the annuitant has died. The executor of a deceased annuitant's estate who, in such circumstances, wishes to claim the deduction in the deceased annuitant’s terminal return should simply indicate the amount claimed in line 232 of the terminal return of the deceased annuitant and use the space to the left of the line to indicate that it is a deduction for the refund of unused RRSP contributions. To determine the amount of the claimed deduction, the executor could contact the CRA's Individual Income Tax Enquiries Service by telephone or obtain a worksheet [“feuille de calcul”] from the CRA by contacting the appropriate Tax Center in writing.
We hope that our comments will be of assistance.
Louise J. Roy, CPA, CGA
Section Manager
for the Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch