Principal Issues: Property held in a trusteed RRSP 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 is unknown. In a subsequent taxation year, the surviving spouse of the deceased RRSP annuitant claims from the DPBNR the amount it received, in accordance with the provisions of the UPA. DPBNR pays to the surviving spouse, qua sole beneficiary of the deceased RRSP annuitant’s estate, an amount corresponding to the amount received from the RRSP 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 surviving spouse?
2) In which taxation year should the surviving spouse include such amount in computing her income?
3) Is the conclusion affected by the fact that it is the estate and not the surviving spouse that would have been entitled to receive the amount from the RRSP, where the amount was paid to the surviving spouse because 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 subsection 146(8) is the amount of the benefit as determined under subsection 146(1). Where no amount can reasonably be regarded as having been included in the deceased annuitant’s income by virtue of subsections 146(8.8) and (8.9), the benefit essentially corresponds to the RRSP proceeds paid by the RRSP issuer to the DPBNR, reduced by the portion thereof which is a tax-paid amount.
2) The amount should be included in computing the income of the surviving spouse for the taxation year in which DPBNR has transferred her the amount in accordance to the provisions of the UPA.
3) Where the right-holder is an estate and subsection 146(8.1) does not apply, it is the estate that should include the survivor benefit under subsection 146(8) 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, unless subsection 146(8.1) applies. 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 subsection 146(8) in computing his/her income.
Reasons: 1) Definition of benefit in subsection 146(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 subsection 146(8). As a result of the surrogatum principle, subsection 146(8) however applies in the year DPBNR remits the amount received to the now identified right-holder.
3) The law and administrative position.
XXXXXXXXXX Mélanie Beauli 2019-080289 August 13, 2020
Dear Sir,
Subject: Unclaimed registered retirement savings plan ("RRSP") amounts
This letter is in response to your request for an interpretation from the Registered Plans Directorate dated January 20, 2019, which was sent to us on March 29, 2019, regarding the tax consequences arising from the receipt by a taxpayer of amounts paid to her by the Direction principale des biens non réclamés (“DPBNR”) in a particular situation. In addition to the information provided in your initial request, we have considered, for the purposes of this letter, information provided to us during various email and telephone exchanges (XXXXXXXXXX/Beaulieu, XXXXXXXXXX/Beaulieu). We have also considered certain general information relating to the operation of the DPBNR with respect to unclaimed RRSPs. This information comes essentially from the Unclaimed Property Act, CQLR, c. B-5.1 ("UPA"), from the website of Revenu Québec as well as from exchanges we were able to have with the DPBNR in order to clarify its procedures in a situation such as the one you described in your application.
More specifically, we understand that your request relates to a situation where a taxpayer received, in XXXXXXXXXX, a lump sum payment from the DPBNR. According to the information provided to us, the lump sum payment to the taxpayer originated from an RRSP under which the taxpayer's deceased spouse was the annuitant. This RRSP was, for the purposes of the Income Tax Act, R.S.C. (1985), c. 1 (5th Supp.) (the “Act”), an RRSP considered to be a trust governed by the RRSP. We understand that the issuer of the RRSP was not notified in a timely manner of the death of the annuitant, so that the taxpayer, who was the executor of the estate and sole heir of the deceased, was unaware of the existence of the RRSP. Thus, although the RRSP annuitant died in XXXXXXXXXX, no T4RPS slip in respect of that RRSP was issued to the executor at the time of death, and no amount in respect of that RRSP was included in the deceased's final return. We understand that the executor of the estate proceeded with the settlement of the estate as if this RRSP did not exist and that the settlement of the estate was completed in XXXXXXXXXX, with the property of the estate having been distributed to the taxpayer in that year as the sole heir.
We understand that the RRSP under which the deceased was the annuitant became unclaimed property within the meaning of the DPBNR in XXXXXXXX. We also understand that in a relatively short period of time following the discovery of this fact by the issuer and the DPBNR (footnote 1), the DPBNR, having conducted searches, was informed that the RRSP annuitant had been dead since XXXXXXXXXX. In light of this information, the DPBNR then instructed the RRSP issuer to wind up the RRSP, i.e. to dispose of the securities held therein, and to remit the proceeds of disposition in cash to the DPBNR, which then acted as provisional administrator of the property of others, not for the benefit of the deceased annuitant, but for the benefit of his then unidentified heirs.
We understand that at this stage the issuer, having been notified of the death of the annuitant, has completed an information return in accordance with subsection 214(4) of the Income Tax Regulations, C.R.C., c. 945, as amended ("Regulations") in respect of the amount that the deceased annuitant was deemed to have received immediately before his death under subsection 146(8.8) of the Act, which was confirmed by the T4RSP slip for the XXXXXXXXXX year, a copy of which was provided to the taxpayer by the DPBNR. We further understand that the issuer subsequently filed T3 tax returns for the trust governed by the deceased annuitant's RRSP for each of the years after death for which the trust had a tax liability, which tax would have been paid out of the property held in the RRSP. Our understanding arises in part from the T4RSP slips that were issued by the issuer to the DPBNR, mostly for the XXXXXXXXXX to XXXXXXXXXX years, copies of which were provided by the DPBNR to the taxpayer, and on which amounts appear in Box 28 (Other income or deductions), as well as Box 40 (Tax-paid amount), in the case of slips issued for years subsequent to the XXXXXXXXXX year.
We understand that it was not until XXXXXXXXXX that the taxpayer claimed and obtained from the DPBNR the amounts to which the taxpayer was entitled. We understand that the taxpayer was then paid a lump sum payment by the DPBNR equal to the amount paid by the RRSP issuer on the liquidation of the RRSP plus interest, less fees related to the liquidation of the securities, fees related to the administration, reporting and delivery of the property and applicable taxes. We understand that your questions do not relate to the interest received by the taxpayer, but only to the amount received from the RRSP and the fees deducted by the DPBNR from such amount.
Your Questions
Your questions essentially concern the tax treatment, to the taxpayer, of the amounts paid to the taxpayer by the DPBNR in XXXXXXXXXX, excluding the amount paid as interest. Specifically, you asked us to describe the extent to which such amounts must be included in computing the taxpayer's income and, if applicable, in which taxation year(s) the amounts so paid must be included in computing the taxpayer's income, taking into account, on the one hand, that a portion of these amounts represents the fair market value ("FMV") of the RRSP property at the time of the annuitant's death, and, on the other hand, that the income reported on the slips issued to the taxpayer relates to a number of years after the death but well before these amounts were issued to the taxpayer. You raised statute-barring, both regarding the amount deemed to be received by the deceased and regarding income generated thereafter and for which slips were issued for statute-barred years. If our conclusion is that all or a portion of the amounts received by the taxpayer should be included in computing the taxpayer's income, you asked us whether the fees charged by DPBNR could be deducted in computing the taxpayer's income.
Our Comments
This technical interpretation provides general comments on the provisions of the Income Tax Act and related legislation, as the case may be. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R9, Advance Income Tax Rulings and Technical Interpretations.
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
Death of the annuitant of an RRSP and tax treatment of the trust governed by the RRSP upon death
Subsection 146(8.8) provides that where the annuitant of an unmatured RRSP dies, the annuitant is deemed to have received, immediately before death, an amount as a benefit equal to the FMV of all the property of the RRSP at the time of death. Consequently, in the year of death, this amount must be included in computing the deceased annuitant's income by virtue of subsection 146(8) and paragraph 56(1)(h) (footnote 2).
The death of the annuitant of a trust governed by an RRSP does not terminate the trust or cause it to lose its registration as an RRSP. However, the taxable income of the RRSP trust becomes subject to tax under Part I of the Act for each year after the year following the year of the annuitant's death by virtue of paragraph 146(4)(c).
In the situation described, the FMV of the RRSP property should have been included in the deceased annuitant's final return by virtue of subsections 146(8) and (8.8) and paragraph 56(1)(h). However, it is our understanding that this amount was not included in the annuitant's final return because the executor of the annuitant's estate was unaware of the existence of the RRSP. We understand that the deceased annuitant's final return is now statute-barred.
Furthermore, beginning in the year XXXXXXXXXX, the year after the year following the year of the annuitant's death, the income of the trust governed by the RRSP was subject to tax under Part I of the Act by virtue of paragraph 146(4)(c). We understand that the issuer acknowledged that this was the case when it was notified of the annuitant's death by the DPBNR. We understand that the issuer then filed the T3 returns of the RRSP trust for each of the years XXXXXXXXXX through XXXXXXXXXX, inclusive, for which the RRSP trust had taxable income and paid the tax payable out of the RRSP property, which would explain the tax-paid amounts appearing on the T4RSP slips issued for each of the relevant years.
Tax treatment of amount derived from a deceased annuitant's RRSP received by another person
Where, after the death of the annuitant of an RRSP, an amount is paid out of the RRSP to a person other than the annuitant, that other person must include in computing that person’s income all or part of the amount so received, to the extent that all or part of the amount is a benefit as defined in subsection 146(1). In particular, subsection 146(8) provides for the inclusion in computing a taxpayer's income for a taxation year of the total of all amounts received by the taxpayer in the year as RRSP benefits, subject to certain exceptions (footnote 3). This provision does not apply only to the annuitant, but to any person who receives a benefit under an RRSP.
The concept of "benefit" under an RRSP is defined in subsection 146(1) and includes any amount received out of or under an RRSP, subject to certain exceptions. For the purposes of this discussion, the relevant exceptions are set out in paragraphs (a) and (c) of the definition, which refer respectively to
- the portion of the amount received that can reasonably be regarded as part of the amount included in computing the income of an annuitant by virtue of subsections 146(8.8) and (8.9), and
- an amount, or part thereof, received in respect of the income of the RRSP trust for a taxation year for which the trust was not exempt from tax by virtue of paragraph 146(4)(c).
In the situation described, the exception in paragraph (a) of the definition of "benefit" in subsection 146(1) is inapplicable even though the amount paid out of the RRSP to the DPBNR was paid after the death of the annuitant. Indeed, it is not reasonable to consider all or part of the amount paid out of the RRSP to the DPBNR as part of the amount included in computing an annuitant's income by virtue of subsections 146(8.8) and (8.9) since, as noted above, no amount was included in computing the annuitant's income pursuant to subsections 146(8.8) and (8.9) in the annuitant's final return.
The exception in paragraph (c) of the definition of "benefit" appears to us to be applicable, as the amount paid out of the RRSP to the DPBNR consisted in part of the income of the RRSP trust for years XXXXXXXX to XXXXXXXX, in respect of which the RRSP trust was not exempt from tax under paragraph 146(4)(c). If our understanding is correct and the amounts shown in Box 40 of each of the T4RSP slips that were filed with the DPBNR are the income of the RRSP trust earned in the relevant years that was subject to tax as a result of the discovery of the death of the annuitant, the amount described in paragraph (c) of the definition of "benefit" is the total of the amounts shown in Bas ox 40 of each of those T4RSP slips.
Thus, if our understanding of the situation is correct, it appears to us that the total amount paid to the DPBNR, reduced by an amount equal to the total of the amounts shown in Box 40 of each of the T4RSP slips issued to the DPBNR and copied by the DPBNR to the taxpayer, would constitute a benefit within the meaning of subsection 146(1).
Tax treatment of an amount derived from a deceased annuitant's RRSP received by the DPBNR and paid to the beneficiary
Benefits paid to a taxpayer under an RRSP are to be included in computing the taxpayer's income for the taxation year in which they are received. On the other hand, where an administrator of the property of others receives an amount on behalf of another person, referred to here as the "beneficial owner," it is the beneficial owner who must normally include the amount in computing income for the year in which it is received by the administrator of the property of others in accordance with the provisions of the Act. The role of the administrator of the property of others is then similar to that of an agent who receives an amount on behalf of its principal, in which case it is the principal who must include the amount in computing its income for the year in which it is received by the agent in accordance with the provisions of the Act.
However, in the situation you described, the difficulty arises from the fact that at the time the DPBNR (as administrator) received a benefit under an RRSP on behalf of an unidentified beneficiary (the beneficial owner), the beneficial owner was unknown and could not be identified. However, it is the longstanding position of the Canada Revenue Agency ("CRA") that the CRA must, in calculating taxes payable for a taxation year, rely on the facts as they exist at the end of the taxation year. Indeed, the Act generally does not 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 received a benefit under an RRSP, the beneficial owner was not identified with certainty, the facts as they existed at the end of the particular taxation year did not permit the benefit to be included in computing a taxpayer's income. The fact that the identity of the beneficial owner 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 a beneficial owner and paid in a subsequent year to the same beneficial owner, once identified, is not required to be included in computing the beneficial owner's income in the particular taxation year.
Where benefits are paid out of an RRSP to the DPBNR and the DPBNR subsequently pays an equivalent amount, less fees, to a taxpayer, subsection 146(8) does not appear, at first glance, to apply at the time the DPBNR pays the amounts, since the amounts paid to the taxpayer by the DPBNR are not paid out of an RRSP as defined in subsection 146(8). However, under the surrogatum principle, where a payment is of a compensatory nature, the nature and purpose of the payment must be examined to determine how the payment is to be treated for tax purposes. Payments made by the DPBNR out of benefits received by the DPBNR from an RRSP are of a compensatory nature in that they are a substitute for the benefit to which the taxpayer would have been entitled and received under the RRSP but for the intervention of the DPBNR. In that regard, it is our view that such payments should receive the same tax treatment as the benefits they are intended to replace, and therefore should be included in computing the income of the taxpayer receiving them by virtue of subsection 146(8) and paragraph 56(1)(h) (footnote 4).
In the situation you described, it appears to us that the amount paid by the DPBNR to the taxpayer, as the beneficial owner, in the XXXXXXXXXX taxation year, was paid to the taxpayer in lieu of a benefit under an RRSP to which the taxpayer would otherwise have been entitled but for the intervention of the DPBNR. Consequently, we are of the view that such amount is required to be included in computing the taxpayer's income by virtue of subsection 146(8) and paragraph 56(1)(h) for the year in which it was paid to the taxpayer by the DPBNR.
Fees and amount to be included in computing the beneficial owner's income
We understand that under the procedures of the DPBNR, where the DPBNR receives benefits under an RRSP for an unidentified beneficial owner whom it subsequently identifies, it will generally pay to the beneficial owner an amount equal to the amount it received, plus certain interest, less certain fees that it levies pursuant to section 56 of the UPA and section 8 of the Regulation respecting the application of the Unclaimed Property Act, CQLR, c B-5. 1, r 1 ("RUPA"), which refers to Schedule I of the RUPA. We understand that, as a result, the amount paid by the DPBNR to a particular beneficial owner in respect of an RRSP benefit previously paid to the DPBNR is substantially equal to (but subject to any interest that may be added to such amount) the amount that the beneficiary would have received directly from the RRSP, if the benefit had not been subject to the UPA, less the fees charged by the DPBNR.
These fees, which are levied under the provisions of the UPA and the UPA, are imposed in satisfaction of a legal obligation of the beneficial owner to pay them. In this regard, we are of the view that, for purposes of the Act, such amounts are to be considered as having been received (footnote 5) by the beneficial owner for the purposes of the relevant provisions. In this context, we are of the view that the beneficial owner is considered, for the purposes of the Act, to have received not only the amount physically paid to her by the DPBNR but also amounts levied as fees by the DPBNR in satisfaction of a legal obligation of the beneficial owner, in accordance with the provisions of the UPA and the RUPA. Furthermore, as these fees were incurred for the administration and liquidation of the assets under administration, they do not constitute an expense incurred for the purpose of earning income and are therefore generally not deductible by the beneficial owner.
Amount received as a beneficiary of an estate whose administration has been completed
An additional issue arises in the situation described because it was as the deceased annuitant's heir, and therefore as a beneficiary of the deceased annuitant's estate, and not as the designated beneficiary of the RRSP, that the taxpayer was entitled to the amounts paid to the taxpayer by the DPBNR. In other words, the estate of the deceased annuitant should normally have received the amounts first, and then distributed them to the taxpayer as sole heir. However, by the time of the payment by the DPBNR in XXXXXXXXXX, the estate had long since ceased to exist, as the executor of the estate had been discharged from the executor’s administration as early as XXXXXXXXXX, so that the amounts were paid directly to the executor as heir.
For the purposes of the Act, an estate is considered a trust and is deemed to be an individual in respect of the property of the estate. Thus, where the estate of a deceased annuitant is the beneficiary to whom an amount is to be paid from the DPBNR, it is the estate that must include that amount in computing its income under subsection 146(8) (footnote 6). This does not necessarily mean that it is the estate that will be required to pay tax on that amount, as the provisions of subsections 104(6) and (13) may apply, depending on the circumstances.
In the event that the RRSP benefit should have been paid to the estate but, prior to the time that the DPBNR made that determination, the executor of the estate was discharged from its administration, we are of the view that the question of which, of the estate of the deceased annuitant or the beneficiaries of the estate, was entitled to be paid the amounts received by the DPBNR, is a question of fact and law that it is not for us to determine. In any event, in this case, the CRA will not object to it being the beneficiaries of the estate who were entitled to all or part of the benefits paid by the RRSP (having regard to the provisions of the will or, as the case may be, the law of intestacy) who are considered to have received such amounts directly from the DPBNR.
Thus, in the situation described, the CRA will not object to the sole heir being considered to have received those amounts directly from the DPBNR. In such a case, it is the taxpayer who should include the amounts received and deemed to be received from the DPBNR in computing income, even though the taxpayer received them as a beneficiary of the deceased annuitant's estate, which estate was terminated before the DPBNR was able to pay the amounts.
We hope that these comments are of assistance.
Best regards,
Mélanie Beaulieu
Manager
Trust and Financial Industries 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 The UPA entrusts the administration of unclaimed property referred to therein to the Minister of Revenue of Québec. The DPBNR is the branch of the Ministère du Revenu du Québec that is responsible for unclaimed property.
2 Subsection 146(8.9) allows for a reduction in the benefit deemed received by the deceased annuitant under subsection 146(8.8) where amounts qualify as a "refund of premiums" within the meaning of subsection 146(1) or where subsection 146(8.1) applies. The provisions of subsection 146(8.9) and subsection 146(8.1) are not relevant for the purposes of this bulletin.
3 These exceptions essentially relate to eligible amounts under the Home Buyers' Plan and the Lifelong Learning Plan, and to amounts otherwise included in the income of the annuitant of an amended or revised RRSP that no longer meets the conditions for RRSP registration. These exceptions are not relevant for the purposes of this document.
4 By analogy, see Lavoie v. The Queen, 2009 TCC 293.
5 By analogy, see Toth v. The Queen, 2006 TCC 116.
6 Subsection 146(8.1) provides, however, that under certain conditions, an amount paid to the legal representative of a deceased annuitant (and therefore to the estate of the annuitant) may be deemed to be received by a beneficiary of the estate (and not by the legal representative) at the time it was paid to the legal representative. However, we do not believe that this provision is relevant in this situation.