Principal Issues: [TaxInterpretations translation] In a particular situation, would the executor of the estate of the deceased spouse (Mr. A) and the surviving spouse (Ms. A) be able to make an election under subsection 146(8.1) as amended by the July 18, 2005, Income Tax Legislative Proposals (the "Proposals") in respect of the amount paid out of Mr. A's RRSP to the executor of the estate of Mr. A.?
Position: Yes.
Reasons: Subsection 146(8.1) as amended by the Proposals would apply to an individual who is "beneficially interested", as defined in subsection 248(25), in the estate of a deceased RRSP annuitant who is not a direct beneficiary of the estate, as is the case in Particular Situation, where Ms. A has only an indirect interest in Mr. A's estate by virtue of being a beneficiary of a trust that is itself a beneficiary of the estate.
2005-016194 XXXXXXXXXX Guy Goulet, CA, M.Fisc. (819) 986-8098 May 9, 2006
Dear Madam,
Subject: Subsection 146(8.1)
This is in response to your letter of December 5, 2005, requesting our comments on the application of subsection 146(8.1) as amended by the July 18, 2005, Legislative Proposals Relating to Income Tax ("the Proposals") in the Particular Situation described below.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Particular Situation
Mr. A died in 2006. Immediately before his death, the fair market value ("FMV") of his unmatured registered retirement savings plan ("RRSP") was $100,000 while the FMV of his other assets was $500,000. Under the terms of his will, Mr. A left all of his property to a spousal trust for his wife, Ms. A. An encroachment clause allowed for encroachments of trust capital for the benefit of Ms. A. After Mr. A's death, the trustee made encroachments of capital to Ms. A in the amount of $100,000, the FMV of Mr. A's unmatured RRSP immediately before his death. Thereafter, the executor of the estate and Ms. A jointly elected under subsection 146(8.1) in the amount of $100,000. Finally, before the end of 2006, Ms. A contributed $100,000 as a premium to an RRSP under which she is the annuitant.
Your Question
You wish confirmation of your interpretation that in the Particular Situation, the executor of Mr. A's estate and Ms. A could make the election under subsection 146(8.1) as amended by the Proposals in respect of the amount paid out of Mr. A's RRSP to the executor of Mr. A's estate.
Our Comments
It appears to us that the situation described in your letter may be an actual situation involving taxpayers. The Canada Revenue Agency ("CRA") does not generally provide written opinions on proposed transactions otherwise than by way of advance ruling. Furthermore, it is the responsibility of the relevant Tax Services Office to determine whether completed transactions have received appropriate tax treatment. We can, however, offer the following general comments which may not be fully applicable in a particular situation.
Subsection 146(8.1) as amended by the Proposals provides that an amount paid out of or under an RRSP to the deceased annuitant’s legal representative that would have been a refund of premiums if it had been paid under the plan to an individual who is a beneficiary (as defined in subsection 108(1)) of the deceased’s estate, is, to the extent it is so designated jointly by the legal representative and the beneficiary in prescribed form filed with the Minister, deemed to be received by the individual (and not by the legal representative) at the time it was so paid as a benefit that is a refund of premiums.
We are of the view that subsection 146(8.1) would apply to an individual who is "beneficially interested", within the meaning of subsection 248(25), in the estate of a deceased RRSP annuitant who is not a direct beneficiary of the estate, as is the case in the Particular Situation, where Ms. A has only an indirect interest in Mr. A's estate by virtue of the fact that she is a beneficiary of a trust that is itself a beneficiary of the estate.
Our opinion is based on the Proposals and is valid to the extent that the Proposals are adopted as proposed.
We hope that our comments are of assistance.
Best regards,
Louise Roy
for the Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch