Principal Issues: [TaxInterpretations translation] Does subsection 146(8.1) apply if an intestate heir renounces an estate to another person?
Position: No.
Reasons: A waiver in favour of a person is a transfer of property between the intestate heir and the beneficiary of the waiver and not a transfer as a result of the death of the deceased annuitant.
2005-016259 XXXXXXXXXX Guy Goulet, CA, M.Fisc. (819) 986-8098 May 10, 2006
Dear Sir,
Subject: RRSP on death
This is in response to your fax of November 3, 2005, in which you asked for our comments on the consequences of a renunciation by a person to an estate 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 without a will. Immediately before his death, the fair market value ("FMV") of his unmatured registered retirement savings plan ("RRSP") was $150,000 while the FMV of his other assets was $50,000. Mr. A's intestate heirs were his spouse ("Mrs. A") and Mr. A's two children ("Children A").
Your Question
In the event that Children A renounced Mr. A's estate in favour of Mrs. A, could Mrs. A and Mr. A's legal representative elect under subsection 146(8.1) to deem the amount paid out of Mr. A's RRSP to Mr. A's legal representative to be received by Mrs. A as a benefit that would be a refund of premiums? Also, would the result be the same if Children A were to renounce only to Mrs. A a portion of Mr. A's estate that would represent their share of Mr. A's RRSP?
Our Comments
It appears to us that the situation described in your letter could be an actual situation involving taxpayers. The Canada Revenue Agency does not generally provide a written opinion on proposed transactions otherwise than by way of an 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(8.9) provides a deduction in respect of the amount included in the income of the deceased annuitant pursuant to subsection 146(8.8) where the amounts are refunds of premiums. A refund of premiums includes an amount paid to the spouse or common-law partner of the annuitant who died before the maturity of the plan where the amount is paid as a consequence of the death of the annuitant under the plan, other than a tax-paid amount in respect of the plan.
Under subsection 146(8.1) as amended by the Income Tax Legislative Proposals of July 18, 2005 ("the Proposals"), an amount paid to an estate may constitute a refund of premiums if the following conditions are satisfied:
a) the amount is to be paid out of a deceased annuitant's RRSP to the deceased annuitant's legal representative;
b) if the amount had been paid under the RRSP to a beneficiary (as defined in subsection 108(1)) of the estate, it would have been a refund of premiums, and
c) the deceased annuitant's legal representative and the beneficiary elect by filing prescribed Form T2019.
Paragraph 248(8)(b), as amended by the Proposals, treats a transfer, distribution or acquisition of property as a consequence of a disclaimer, release or surrender by a person who was a beneficiary on the intestacy of a taxpayer as a transfer, distribution or acquisition of the property as a consequence of the death of the taxpayer. Subsection 248(9) indicates that a disclaimer includes a renunciation of a succession made under the laws of the Province of Quebec that is not made in favour of any person. Thus, a disclaimer involves an unconditional refusal to accept an interest in the estate without any indication as to how the deceased annuitant's representative should distribute the disclaimed portion.
In the Particular Situation, there would be renunciations of Mr. A's estate to Mrs. A. Such renunciations could not be considered disclaimers for the purposes of the Act because they would be transfers of property from some of the intestate heirs (Children A) to Mrs. A and would not be a transfer as a consequence of Mr. A's death. However, if the renunciations of Mr. A's estate by the Children A had not been made for the benefit of someone, but had been legally valid outright renunciations that complied with the specifications of subsection 248(9), we are of the view that they could have been transfers as a consequence of Mr. A's death.
We hope that our comments are of assistance.
Best regards,
Louise Roy
for the Director
Financial Industries Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch