Principal Issues: Whether a contribution may be an exempt contribution within the meaning of subsection 207.01(1) if it is made prior to the receipt, by the survivor, of a survivor payment, and a survivor payment is received later by the survivor, within the rollover period?
Position: Yes, to the extent that the contribution does not exceed the limit determined under paragraph (d) of the definition of "exempt contribution" in subsection 207.01(1) and only if the survivor designates the contribution in prescribed form filed after the receipt of the survivor payment and within the delay provided for in paragraph (c) of the same definition - which may require exercise of ministerial discretion to extend the 30 days delay.
Reasons: Wording of the definition of "exempt contribution".
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE
Question 5
Definition of "exempt contribution" - contribution made before payment to survivor
We wish to know when a contribution can be made, in relation to the time when the "survivor payment" in the definition of "exempt contribution" in subsection 207.01(1) (the "Definition") must be received. Consider the following situation:
- Mr. X died on January 1, 2018.
- Among other things, he had a tax-free savings account ("TFSA") trust with a value of $100,000 at the date of death.
- His will provided for a specific bequest of his TFSA to his spouse, Ms. Y.
- During the settlement of the estate, the TFSA account remained open and its value did not fluctuate.
- As the estate was late in being settled, Ms. Y made a $100,000 contribution to her own TFSA on June 15, 2019, using her own funds and designating that contribution as an "exempt contribution" within the meaning of the Definition, before receiving anything directly or indirectly from the TFSA.
- Once the estate was settled and the TFSA was wound up, the executor paid to Ms. Y, in full settlement of her bequest, $100,000 representing the value of the TFSA before the end of the rollover period, being before December 31, 2019.
In our view, the Definition appears to permit the survivor, in this case Ms. Y, to use her own funds to make a contribution to her TFSA without waiting for the amount to be paid to her by the estate as a survivor payment, as long as the other conditions in the Definition are satisfied, including that the payment is made by the estate to the survivor and that the contribution by the survivor is made during the rollover period.
Question to the CRA
Will Ms. Y be able to designate her contribution made on June 15, 2019 as an "exempt contribution" within the meaning of the Definition? In other words, must Ms. Y wait until she receives the payment from the estate before making the contribution to her own TFSA?
CRA Response
The Definition does not require that the contribution be made with the amounts received by the survivor (in this case, Ms. Y) as a survivor payment. Neither does the Definition require that the survivor payment be received before the contribution is paid. That being so, for a particular contribution to be designated as an "excluded contribution", all conditions of the Definition must be satisfied.
In particular, the contribution must be paid during the rollover period (as defined in paragraph (a)) and the payment to the survivor must be received during the rollover period (as required by paragraph (b)).
In addition, paragraph (c) of the Definition requires that the contribution be designated in prescribed form (Form RC240), within 30 days after the day on which the contribution is made (or at any later time that is acceptable to the Minister). In the situation described, it was not open to Ms. Y to file Form RC240 on June 15, 2019, since she had not yet received a survivor payment. Indeed, in order to be able to file Form RC240, Ms. Y must be able to make a determination of the maximum amount that qualifies as an excluded contribution, which, under subparagraph (d)(i) of the Definition, cannot be made before a survivor payment is received by Ms. Y. Thus, until Ms. Y has received a survivor payment, the amount of the contribution that may be designated is nil and no designation can be made under paragraph (c) of the Definition. It follows that unless she receives the survivor payment within 30 days of the time she made her contribution, Ms. Y will not be able to file Form RC240 within the 30-day period provided in paragraph (c) of the Definition.
In the event that Ms. Y receives a survivor payment more than 30 days after making her contribution but within the rollover period, she may request the exercise of Ministerial discretion in order to be able to file Form RC240 late. Only if the Minister accepts the filing of Form RC240 at a time after the expiry of the 30-day period may Ms. Y's contribution qualify as an excluded contribution.
In short, subject to the acceptance by the Minister of a late Form RC240, a contribution made more than 30 days before the survivor receives a survivor's payment cannot qualify as an excluded contribution. Thus, in the situation described, the $100,000 contribution made by Ms. Y on June 15, 2019 cannot be considered an excluded contribution if Ms. Y receives the $100,000 survivor payment on or after July 15, 2019 (although within the rollover period), unless the Minister allows her to file Form RC240 at a later date.
Note also that in such a situation, where she makes her contribution on June 15, 2019, Mrs. Y runs the risk that the contribution never qualifies as an excluded contribution. In fact, that qualification is dependent on future events, so that the contribution may never qualify as an excluded contribution, in particular if she never receives a survivor payment or if she is unable to file Form RC240 within the period provided in paragraph (c) of the Definition. If applicable, depending on the circumstances, the contribution made by Ms. Y on June 15, 2019 could result in a TFSA surplus and, consequently, a tax by virtue of section 207.02, beginning in the month of June, 2019.
Mélanie Beaulieu
(613) 670-8905
October 11, 2019
2019-082090
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Form RC240, Designation of an Exempt Contribution - Tax-Free Savings Account (TFSA), 2018.