Principal Issues: A survivor benefit under a registered pension plan (“RPP”) is paid in a taxation year to the Direction principale des biens non réclamés ("DPBNR") pursuant to Québec’s Unclaimed property Act (“UPA”) because the person entitled thereto (the surviving spouse or the right-holders of a deceased RPP member) is unknown. In a subsequent taxation year, the person who was entitled to receive the survivor benefit (“right-holder”), now identified, claims from the DPBNR the amount it received, in accordance with the provisions of the UPA. DPBNR pays to the right-holder an amount corresponding to: the net amount received from the RPP (that is, the survivor benefit payable under the RPP, reduced by federal and provincial income tax withheld at source by the RPP administrator), less a fee that DPBNR deducts therefrom, in accordance with the UPA and its regulation. In this situation :
1) What is the amount to be included in computing the income of the right-holder?
2) In which taxation year should the right-holder include such amount in computing his/her income?
3) Does the same apply where it is an estate that would have been entitled to receive the amount, but the administration of the estate has been completed prior to the DPBNR being in a position to make a payment?
Position: 1) The amount to be included under subparagraph 56(1)(a)(i) is the gross amount of the survivor benefit payable under the RPP, as indicated in the T4A slip issued by the RPP administrator.
2) The amount should be included in computing the income of the right-holder for the taxation year in which DPBNR has transferred him/her the amount in accordance to the provisions of the UPA.
3) Where the right-holder is an estate, it is the estate that should include the survivor benefit under subparagraph 56(1)(a)(i) in computing its income for the year of receipt. To the extent that the amount received by the estate is payable in the year to a beneficiary of the estate, subsections 104(6) and (13) should generally apply. Where the administration of the estate has been completed prior to the DPBNR being in a position to pay the amount, the CRA accepts that the estate beneficiary directly includes the amount under subparagraph 56(1)(a)(i) in computing his/her income.
Reasons: 1) Meaning of receipt and doctrine of constructive receipt.
2) At the time DPBNR receives the amount, it receives it on behalf of an unknown right-holder. Hence, the amount is not received by a taxpayer at that time as required by subparagraph 56(1)(a)(i). Besides, this provision applies not only to superannuation or pension benefits, but also to amounts received in lieu of superannuation or pension benefits. Therefore, subparagraph 56(1)(a)(i) applies in the year DPBNR remits the amount received to the now identified right-holder.
3) The law and administrative position.
XXXXXXXXXX Mélanie Beaulieu 2016-064982 April 2, 2019
Dear Madam,
Subject: Unclaimed superannuation or pension benefits
This is in response to XXXXXXXXXX's request of XXXXXXXXXX regarding the tax consequences applicable to certain situations.
In addition to the information provided in the original request submitted by XXXXXXXXXX, we have for the purposes of this letter considered the information provided to us in various exchanges between XXXXXXXXXX and the Income Tax Rulings Directorate ("ITRD"), by email and in various telephone conversations (XXXXXXXXXX/Beaulieu, XXXXXXXXXX/Beaulieu, XXXXXXXXXX/Beaulieu).
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the “Act").
Particular Situation
The Unclaimed Property Act, CQLR, c. B-5.1 ("UPA") entrusts the Minister of Revenue of Quebec with the administration of unclaimed property covered by the UPA. The situations you have described to us are essentially ones where amounts from registered pension plans ("RPPs") are paid to the [Direction principale des biens non réclamés ] DPBD as provisional administrator when the person otherwise entitled to those amounts (the "right-holder") is unknown or not found.
The issues raised here concern only situations where the RPP member is deceased, often for a number of years, without the RPP administrator having been notified of the death. As a result of the member's death, certain amounts may be payable under the RPP to the spouse of the deceased member or, failing that, to a designated right-holder (footnote 1) or to the deceased member's estate. In any case, we will refer to these amounts as "survivor benefits" for the purposes of this letter.
We understand that the difficulty arises from the fact that, at the time the amounts are paid from the RPP to the DPBNR, the information available to the RPP administrator and the DPBNR does not allow them to determine who is the right-holder of the amounts paid. It is only later, following notices published by the DPBNR, that the true right-holder will possibly be identified and that the right-holder will be able to claim the amounts owed. In some cases, several years may have elapsed between the payment of the amounts to the DPBNR and their delivery to the right-holder. In other cases, no right-holder will be identified and the amounts will be paid over to the Minister of Finance of Quebec, more specifically to the Fonds des générations [translation: Generations Fund].
We understand that an additional problem arises in certain situations where it turns out that the right-holder was the estate of the deceased member, but that the administration of that estate has been completed for some time, with the property known to the estate having been fully distributed to the heirs. We understand that in some cases the executor of the estate, having been discharged from administration for many years, has died, or is otherwise unable to resume the office of executor. You have also described situations where the deceased member's sole heir had also died before the survivor benefits that would normally have been paid to the deceased member's estate are paid by the RPP administrator to the DPBNR.
Your Questions
Your questions essentially concern the tax treatment, to the right-holder, of the amounts paid to the right-holder by the DPBNR, where a transfer to the right-holder is possible. In particular, you are asking us to specify in which taxation year the amounts so remitted must be included in the computation of the income of the right-holder. In the event that the estate of the deceased member would normally have received the sums, but the administration of the estate was completed before the payment by the DPBNR, the executor of the estate having already, on that date, been discharged from the administration of the estate, you also asked us if the DPBNR can pay the amounts directly to the heirs of the deceased and, if so, how must the heirs be taxed on those amounts.
Our Comments
Tax treatment of a survivor benefit received by the DPBDB and paid to a right-holder
By virtue of subparagraph 56(1)(a)(i), RPP amounts paid to a taxpayer (whether a benefit paid to a living member or a survivor benefit paid to a beneficiary or to the member's estate following the member’s death) must be included in the computation of the taxpayer’s income for the taxation year in which the taxpayer receives them. On the other hand, where an administrator of the property of another receives a sum on behalf of the other person, whom we refer to as the "Administered", it is the Administrator who is normally to include the amount in computing the Adminstered’s income for the year in which it is received by the administrator of the property of the other person, in accordance with the provisions of the Act. The role of the administrator of the property of others then resembles that of an agent who receives an amount on behalf of the agent’s principal, in which case, it is the principal who must include the amount in the computation of principal’s income for the year in which it is received by the agent, consistently with the provisions of the Act.
That being said, in the situation you described, the difficulty arises from the fact that at the time the DPBNB (as administrator) receives a survivor benefit on behalf of an unidentified right-holder (the Administered), the latter is unknown and cannot be identified. However, the long-standing position of the Canada Revenue Agency ("CRA") is that the CRA must, in calculating the taxes payable for a taxation year, rely on the facts as they exist at the end of a taxation year. The Act is not designed to permit the application of new facts that arise in a taxation year to a previous taxation year.
To the extent that, at the end of a particular taxation year in which the DPBNR receives a survivor benefit, the right-holder is not clearly identified, the facts as they exist at the end of the taxation year do not permit the inclusion of the survivor benefit in computing a taxpayer's income. The fact that the identity of the right-holder is clarified in a subsequent year does not change the facts as they existed at the end of the particular taxation year. Consequently, an amount received in a particular taxation year by the DPBNR on behalf of an unknown right-holder and paid in a subsequent year to the same right-holder, once identified, is not to be included in computing the income of the right-holder in the particular taxation year.
Furthermore, subparagraph 56(1)(a)(i) provides that a taxpayer's income for a taxation year must include any amount received by the taxpayer in the year “as, on account or in lieu of payment of, or in satisfaction of …a superannuation or pension benefit… .” In this context, the words "in lieu of" include not only payments having the legal character of a superannuation or pension benefit, but also payments which constitute a reasonable substitute paid instead or in lieu of a superannuation or pension benefit. In the situation you described, it appears to us that where an amount is paid by the DPBNR to a right-holder in a taxation year, it is paid to the right-holder in lieu of a superannuation or pension benefit to which the right-holder would otherwise have been entitled, had it not been for the application of the UPA. Consequently, we are of the view that such an amount is received by the right-holder as a superannuation or pension benefit, so that it is to be included in the computation of the right-holder’s income for the year in which the DPBNR pays it to the right-holder.
Amount to include in the computation of the right-holder’s income
We understand that under the current DPBNR procedures, survivor benefits paid to it by RPP administrators have previously been subject to withholding taxes, which are reflected on the T4A slips that are issued to the DPBNR by the RPP administrators. According to those same procedures, the DPBNR does not withhold tax at the time of remitting the amounts to a right-holder, but remits to the right-holder the net amount that it has received, less certain fees that it deducts by virtue of the UPA and its regulations. We understand that, as a result, the amount paid by the DPBNR to a particular right-holder, in respect of a survivor benefit previously paid to the DPBNR under an RPP, is essentially the amount the right-holder would have received directly from the RPP if the benefit had not been subject to the UPA, less the fees charged by the DPBNR.
In this context, we are of the view that it is the gross amount of the survivor benefit, as shown on the T4A slip issued by the RPP administrator, that must be included in computing the income of the right-holder, even if the right-holder does not physically receive the full amount. In other words, the right-holder is, for the purposes of the Act, considered to have received not only the amount physically paid to the right-holder by the DPBNR but also the amounts that were withheld by the RPP administrator for (federal and provincial) taxes of the right-holder, as well as the fees charged by the DPBNR in accordance with a legal obligation of the right-holder, pursuant to the provisions of the DPBNR and its regulations.
Right-holder who is an estate
We understand that, in general, the legislation applicable to RPPs that pay survivor benefits to the DPBPNR provides a priority to the spouse, so that if the deceased member had a spouse (within the meaning of the applicable legislation), it is then that spouse who is entitled to the survivor benefit under the RPP. In the absence of a spouse, the survivor benefit is payable under the RPP to the estate, unless there is a designated beneficiary.
For the purposes of the Act, an estate is considered as a trust and is deemed to be an individual in respect of the property of the estate. For example, where the estate of a deceased member is the right-holder to whom an amount is to be paid by the DPBNR, it is the estate that must include that amount in computing its income by virtue of subparagraph 56(1)(a)(i). The same applies if the deceased member had a spouse within the meaning of the applicable legislation, but the spouse died before the DPNBNR was able to pay the amount, so that the DPBPNR must pay the spouse’s estate. It is then the estate of the deceased spouse that must include that amount in computing income under subparagraph 56(1)(a)(i). This does not necessarily mean that the estate will be liable to pay tax on that amount. Subsection 104(13) provides that a beneficiary of such a trust must include in computing the right-holder’s income for the year, the part of the income of the trust that became payable to it in the year. Furthermore, paragraph 104(6)(b) provides in general terms that there can be deducted in computing the income of such a trust for a taxation year, the amount that the trust claims not exceeding the amount of the income of the trust that became payable to a trust beneficiary in the year. Subsection 104(24) specifies the circumstances in which an amount became payable in a year, including for the purposes of these provisions. The question of whether an amount paid by the DPBNR to an estate in a particular taxation year is payable to one or more beneficiaries of the estate in the particular taxation year for the purposes of subsections 104(6) and 104(13) is a question of fact and law, which can only be determined on a case-by-case basis, after a complete analysis of the circumstances and provisions of the will or, as the case may be, of the rules governing intestate succession.
Estate whose executor has been discharged from the estate’s administration
In the event that the survivor benefit should have been paid to an estate, but prior to the time that the DPBNR made that determination, the executor of the estate was discharged from the estate’s administration, we are of the view that the issue of who, of the estate of the deceased member or beneficiaries of the estate, is the right-holder to whom the amounts received by the DPBNR are to be paid, is a question of fact and law that is not for us to determine. In any event, in that case, the CRA will not object to the beneficiaries of the estate who are entitled (having regard to the provisions of the will or, as the case may be, rules governing intestate succession) to all or part of the survivor benefit amounts being considered to have received those amounts directly from the DPBNR. The same applies if an heir to such an estate has also been deceased for a period of time, and the executor of that heir’s estate had been discharged from that estate’s administration before the DPBNR was able to pay to that executor the amount due. If so, it is pursuant to subparagraph 56(1)(a)(i) that the amounts received or considered received by the beneficiary(ies) of the estate are to be included in computing the beneficiary(ies)’ income. In the case where the survivor benefit received by the DPBNR is paid by it to more than one beneficiary, in proportion to their respective rights to the estate of the deceased, each will be required to include their share of the gross amount of the survivor benefit originally paid under the RPP.
Source Deductions, Information Returns and Other Issues
XXXXXXXXXX
That being so, we understand that under the current procedures of the DPBNR, it does not generally issue an information slip to the right-holders to whom it pays amounts, but instead gives the right-holders a copy of the T4A slip originally issued by the administrator of the RPP. Thus, the T4A slip given to a right-holder does not indicate either the right-holder’s name, social insurance number, or the year in which the DPNB paid the right-holder the amount due, which causes some confusion to the right-holders at the time of filing their income tax returns. As previously stated, the amounts received and considered to be received by a right-holder as a result of the payment of the net amounts by the DPBNR must be included in the computation of the right-holder’s income in the right-holder’s income tax return for the year in which the amounts are paid to the right-holder, even though the T4A slips given to the right-holders do not indicate their names and social insurance numbers, nor the year in which they received the amounts. Furthermore, the federal withholding tax deducted by the RPP administrator, as indicated on the T4A slip issued by it and transmitted to the right-holder by the DPBNR, will be applied against the tax payable by the right-holder for the year.
XXXXXXXXXX
We hope that our comments will be of assistance.
Best regards,
Louise J. Roy, CPA, CGA
Manager
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 We understand that there may be amounts payable by virtue of a RPP to a beneficiary designated by the deceased member, either in the RPP or in the member’s will. We understand, however, that that situation is rarely encountered in practice in the context of the UPA.