23 December 2002 Internal T.I. 2002-0176087 F - LIMITE APPLICABLE TRANSFER DANS REER
Principal Issue: [TaxInterpretations translation]
What value should be assigned to Variable C of the formula in paragraph 146.3(6.11)(b) in the situation presented?
Position:
The total of all amounts included in the calculation of the annuitant's income pursuant to 146.3(5), (6) and (6.2) of the Act.
Reasons:
Text of the Act and The Queen v. Verrette, [1978] 2 S.C.R. 838.
December 23, 2002
QUEBEC TAX SERVICES OFFICE HEADQUARTERS
Income Tax Rulings Directorate
Attention: Daniel Walsh
Michelle Desrosiers
Notary, M.Fisc.2002-017608
RRSP Designated Benefit Transfer Limit
This is in response to your fax of November 21, 2002, in which you asked for our interpretation of the value to be attributed to Variable C of the formula found in paragraph 146.3(6.11)(b) of the Income Tax Act (the "Act"), which deals with amounts included in computing an annuitant's income in respect of amounts received out of or under the fund.
The facts as we understand them are as follows:
1. The individual (the “annuitant") died on XXXXXXXXXX and was the annuitant of a registered retirement income fund (RRIF).
2. The fair market value (FMV) of the RRIF assets at the time of death was $XXXXXXXXXX, while the minimum amount to be withdrawn from the fund for the year XXXXXXXXXX was $XXXXXXXXXX. During the year XXXXXXXXXX (prior to death), the annuitant received $XXXXXXXXXX from the fund.
3. The RRIF issuer paid the plan funds of $XXXXXXXXXX to the estate on XXXXXXXXXX. No income was earned between the date of death and the date of payment.
4. The named beneficiary of the RRIF was the estate. In his will, the deceased annuitant named his child as beneficiary of the RRIF. The child was a "financially dependent child" of the annuitant at the time of the annuitant's death and qualified under the definition of "designated benefit".
5. The estate transferred all the funds from the RRIF to this child. However, it will designate for the child in XXXXXXXXXX a portion of the amount of $XXXXXXXXXX from the RRIF as a designated benefit, i.e., $XXXXXXXXXX, in accordance with the provisions of the Act.
6. For the XXXXXXXXXX taxation year, the child will have to include the total designated benefit in the child’s income pursuant to subsection 146.3(5), by virtue of subsection 146.3(6.1).
7. Since the child was dependent on the deceased annuitant due to mental infirmity, the estate wishes to transfer the maximum possible amount of the designated benefit of $XXXXXXXXXX included in the child's income for the year XXXXXXXXXX to a registered retirement savings plan (RRSP).
Your Question
Your question concerns the limit applicable to the transfer of the designated benefit to an RRSP (the eligible amount) referred to in subsection 146.3(6.11). More specifically, you wish to know what value should be assigned to C in the formula found in paragraph 146.3(6.11)(b).
Your Position
According to your calculations, if the child purchases an RRSP in the amount of $XXXXXXXXXX in the year XXXXXXXXXX or in the first 60 days following that year, he will be able to deduct $XXXXXXXXXX from his income for the year XXXXXXXXXX, in accordance with subparagraph 60(l)(v). In those circumstances, the child could transfer the entire amount of the designated benefit to an RRSP, despite the deceased annuitant having received only a portion of the minimum amount to be withdrawn from his RRIF in XXXXXXXXXX. You consider that the amount received under subsection 146.3(5) by the deceased annuitant includes the amount deemed received under subsection 146.3(6).
Our Comments
Subsection 146.3(5) is the income inclusion provision for RRIF amounts received by a person in a year.
Our interpretation of the Act is that amounts deemed to be received from the RRIF by the deceased annuitant by reason of subsection 146.3(6) constitute amounts received for the purposes of subsection 146.3(5). This proposition can be inferred from the position taken by Canadian courts regarding the scope to be given to a deeming provision. In this regard, Beetz J. in The Queen v. Verrette, [1978] 2 S.C.R. 838, emphasized the following: "A deeming provision artificially imports into a word or an impression an additional meaning which they would not otherwise convey beside the normal meaning which they retain where they are used.... ". In Havlik Enterprises Ltd. v. MNR, 89 DTC 159, Rip J. commented: "Viscount Simonds said he regarded the primary function of the word 'deem' when used in a statute 'as to bring in something which would otherwise be excluded. ".
Thus, even if the deceased annuitant did not actually receive an amount representing the value of his RRIF, by the effect of the deeming rule, the Act leads us to consider this to be so. Consequently, this amount must be taken into account in determining Variable C in the formula in subsection 146.3(6.11). We are therefore of the view that your result complies with the applicable provisions of the Act.
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Best regards,
Ghislain Martineau
Section Manager
Financing and Plan Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch