Principal Issues: Whether a payment made to a survivor directly or indirectly out of or under a former TFSA after December 31 of the year beginning after the deceased TFSA holder's death may qualify as a survivor payment?
Position: Yes, if ministerial discretion is exercised to extend the rollover period. In such a case, the extended rollover period will be the rollover period for the purposes of paragraph (a) of the definition of “exempt contribution” in subsection 207.01(1), as well as for the purposes of paragraph (b) of the same definition.
Reasons: Definition of "rollover period" in paragraph (a) of the definition of "exempt contribution" and legislative intent as expressed in the April 2008 explanatory notes to former subsection 207.01(2).
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, 11 OCTOBER 2019
2019 APFF CONFERENCE
Question 7
Definition "exempt contribution" - rollover period
Situation:
- Mr. X died on January 1, 2018.
- He held inter alia a tax-free savings account ("TFSA") trust with a value of $100,000 on the date of death.
- His will provided for a specific legacy of his TFSA to his spouse, Ms. Y.
- During the administration of the estate, the TFSA account remained open and its value did not fluctuate.
- However, because the estate was not settled quickly, it was only after the expiry of the rollover period, i.e., after December 31, 2019, that the executor finally wound up the TFSA and paid Ms. Y $100,000, representing the value of the TFSA, in full settlement of her legacy.
- Ms. Y would like to make a $100,000 contribution to her own TFSA and designate it as an "exempt contribution" within the meaning of the definition of "exempt contribution" in subsection 207.01(1) (the "Definition").
If Ms. Y had received the $100,000 representing the value of the TFSA before the rollover period expired, it appears to us that Ms. Y could have designated a matching contribution made to her own TFSA as an exempt contribution in accordance with the Definition. Since she did not receive the payment until after December 31, 2019, such a designation no longer appears to us to be possible. Paragraph (b) of the Definition provides that the payment to the survivor directly or indirectly from the TFSA must be made during the rollover period, without providing the Minister with any discretion to accept a longer period. However, such Ministerial discretion is permitted under paragraph (a), so that it seems possible that, in some cases, a contribution made after the end of the rollover period could still satisfy the conditions of the Definition. Since a similar discretion is not provided for in paragraph (b), in a context where the settlement of certain estates takes longer and the payment to the survivor is made after the rollover period has expired, it appears that the surviving spouse then loses the ability to designate the contribution to his or her own TFSA as an exempt contribution, since the conditions of paragraph (b) are not satisfied.
Question to the CRA
In the situation described, would the CRA be prepared to allow Ms. Y to make a contribution to her own TFSA and designate it as an exempt contribution after receiving the amounts paid by the executor?
CRA Response
A contribution can qualify as an exempt contribution to the extent that it satisfies all the conditions set out in the Definition. In particular, paragraph (b) requires that a survivor payment be made to the survivor during the rollover period.
Paragraph (a) of the Definition defines the "rollover period" for the purposes of the Definition as the period that begins when the individual dies and that ends at the end of the first calendar year that begins after the individual dies (or at any later time that is acceptable to the Minister). Thus, paragraph (a) of the Definition gives the Minister the discretion to extend the rollover period. In such a case, the rollover period so extended shall be relevant not only for the purposes of paragraph (a) but also for the purposes of paragraph (b). As a result, a survivor payment made after December 31 of the first calendar year that begins after the death of the TFSA holder could satisfy the conditions of paragraph (b) of the Definition, provided that the Ministerial discretion is exercised to extend the rollover period. Thus, in the situation described, Ms. Y could, after receiving the amounts paid by the executor, make a contribution to her own TFSA and designate it as an exempt contribution, if the Ministerial discretion is exercised in her favour to extend the rollover period.
Mélanie Beaulieu
(613) 670-8905
October 11, 2019
2019-082170