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, as is the case in the Particular Situation, where Ms. A holds an interest in a testamentary trust that is a beneficiary of the estate.
2006-020126 XXXXXXXXXX Guy Goulet, CA, M.Fisc. (819) 986-8098
November 7, 2006
Dear Sir,
Subject: Paragraph 146(8.1)
This is in response to your letter of December 2, 2005, requesting our comments on the application of subsection 146(8.1) as amended by the Legislative Proposals Relating to Income Tax of July 18, 2005 ("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. Mr. A's will did not contain a capital encroachment clause that would allow for distributions of the trust capital for the benefit of Ms. A. The executor of the estate received $100,000 from the deceased's RRSP in 2006. Ms. A and the executor of the estate jointly elected under subsection 146(8.1) in the amount of $100,000. Finally, before the end of 2006 Ms. A contributed $100,000 from her own funds as a premium to an RRSP under which she was the annuitant.
Your Questions
You wish for 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.
Also, you wish for confirmation that Ms. A could benefit from the provisions of paragraph 60(l) by using her personal funds to contribute the $100,000 premium to an RRSP under which she was the annuitant.
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 a 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.
Subsection 248(25) provides that a person is beneficially interested for the purposes of the Act where the person has any right (whether immediate or future, whether absolute or contingent or whether conditional on or subject to the exercise of any discretion by any person or partnership) as a beneficiary under a trust to receive any of the income or capital of the particular trust either directly from the particular trust or indirectly through one or more trusts. In such a case, that person is a beneficiary within the meaning of subsection 108(1).
We are of the view that subsection 146(8.1) would apply in the Particular Situation, as Ms. A is a beneficiary of Mr. A's estate.
The $100,000 that was deemed to be received by Ms. A in respect of a benefit that was a refund of premiums would be included in computing her income under subsection 146(8) and paragraph 56(1)(h) for 2006. Furthermore, Ms. A would be able to deduct under paragraph 60(l) in computing her income for 2006 the $100,000 that was paid before the end of 2006 as a premium to an RRSP under which she was the annuitant.
Our opinion is based on the Proposals and is valid to the extent that the Proposals are adopted as proposed. Finally, please note that our comments are not an advance income tax ruling and, as stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, are not binding on the CRA in any particular situation.
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch