Principal Issues: Where, under the will of a deceased TFSA annuitant, the property held in the TFSA is bequeathed to a person other than the spouse, and such person executes a disclaimer with respect to the bequest, such that, under the terms of the will, the property held in the TFSA becomes part of the residue and devolves to the spouse, will the spouse be considered to receive the property as a consequence of the death of the TFSA annuitant?
Position: Yes.
Reasons: Subsections 248(8) and (9).
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE
Question 6
Special bequest of the Tax-Free Savings Account to a person other than a spouse
Consider the following situation:
- Mr. X died on January 1, 2018.
- Among other things, he held a tax-free savings account ("TFSA") trust with a value of $100,000 on the date of death.
- His last will provided for a specific legacy of his TFSA to his daughter (at the age of majority) and a residuary legacy of all his property to his spouse, Ms. Y, with full ownership.
- The specific legacy of his TFSA included a clause stipulating that if Mr. X's daughter renounced the legacy of the TFSA to her, the proceeds of that legacy would then fall into the residue of the estate.
- After her father's death, Mr. X's daughter signed a written renunciation of the TFSA legacy to her and, in accordance with the will, the executor of the estate, after winding up the TFSA, and during the rollover period, transferred the value of the TFSA of $100,000 to Ms. Y as the residuary legatee.
- During the rollover period, Ms. Y contributed $100,000 to her own TFSA.
In our view, the conditions of the definition of "exempt contribution" in subsection 207.01(1) ("Definition") are respected. Specifically, Ms. Y would have received a "survivor payment" pursuant to paragraph (b) of the Definition, since a payment directly or indirectly out of or under an arrangement that ceased, because of the Mr. X’s death, to be a TFSA would have been made to the survivor during the rollover period, as a consequence of the death of Mr. X. Paragraph 248(8)(a) provides inter alia that a transfer, distribution or acquisition of property under or as a consequence of a taxpayer’s will shall be considered to be a transfer, distribution or acquisition of the property as a consequence of the death of the taxpayer. Since Mr. X's daughter renounced her bequest and, as a result of that renunciation, the TFSA formed part of the residue of the estate, which was left to Ms. Y under the terms of the will, the payment was therefore made as a consequence of Mr. X's death.
Question to the CRA
Could you confirm that this would allow Ms. Y to designate the contribution made to her own TFSA as an "exempt contribution" under the Definition, if the other conditions of the Definition are otherwise satisfied?
CRA Response
To satisfy paragraph (b) of the Definition, a payment directly or indirectly from an arrangement that ceased to be a TFSA on the death of the individual must be made to the survivor (within the meaning of subsection 146.2(1)) during the rollover period following the death of the individual. Such a payment is called the "survivor payment" in the Definition.
In order for a payment made to a survivor during the rollover period to be a survivor payment, the following conditions must be satisfied, namely: 1) it is made directly or indirectly from an arrangement that ceased to be a TFSA because of the death of the last holder and 2) it is made as a consequence of the individual's death.
In the situation described, the principal question is whether the payment is made as a consequence of the individual's death. In that regard, paragraph 248(8)(a) provides, in particular, that a transfer, distribution or acquisition of property made under a will of a taxpayer or as a consequence of such a will is considered to be a transfer, distribution or acquisition of property made as a consequence of the death of the taxpayer.
Furthermore, paragraph 248(8)(b) provides inter alia that a transfer, distribution or acquisition of property as a consequence of a disclaimer, release or surrender by a person who was a beneficiary under a taxpayer's will is considered to be a transfer, distribution or acquisition of property made as a consequence of the taxpayer's death.
For that purpose, subsection 248(9) defines "disclaimer" as including a renunciation of a succession made under the laws of the Province of Quebec that is not made in favour of any person, but does not include any disclaimer made after the period ending 36 months after the death of the taxpayer (or such longer period as the Minister considers reasonable in the circumstances, if any). The same subsection defines "release or surrender" as including a gift inter vivos made under the laws of the Province of Quebec of an interest in, or right to property of, a succession that is made to the person or persons who would have benefited if the donor had made a renunciation of the succession that was not made in favour of any person, to the extent that the release or surrender is made within the aforementioned period.
In the situation described, the CRA is generally of the view that the payment of $100,000 made by the executor to Ms. Y of the TFSA proceeds would be a payment made as a consequence of Mr. X's death by virtue of subsection 248(8).
It should also be noted that to the extent that the effect of the renunciation by Mr. X's daughter of her specific bequest is, under applicable private law, to increase the residue of the estate to which Ms. Y is entitled, CRA would come to the same conclusion, even in the absence of a specific clause in the will stipulating what happens to the TFSA in the event of a renunciation by Mr. X’s daughter of her bequest.
Mélanie Beaulieu
(613) 670-8905
October 11, 2019
2019-081345