Principal Issues: (1) Whether the joint election (Form T2019) is required in a situation where an unmatured RRSP is subject, under the terms of the will of the deceased annuitant, to a specific bequest in favour of the surviving spouse, and the RRSP proceeds are paid out directly by the issuer to the surviving spouse in accordance with the instructions of the estate executor? (2) If the answer to question (1) is yes or, alternatively, where the RRSP is part of the residue of the estate and the surviving spouse is entitled thereto, whether administrative relief is available such that Form T2019 is not required in a situation where the legal representative gives instructions to the RRSP issuer to pay the RRSP proceeds directly to the surviving spouse? (3) Whether the answers to questions 1 and 2 would be the same for a RRIF?
Position: (1) Yes. (2) No. (3) Yes.
Reasons: (1) As an amount paid pursuant to a specific bequest of the RRSP in favour of the surviving spouse does not qualify as a "refund of premiums", the joint election under subsection 146(8.1) by the legal representative and the surviving spouse (Form 2019) is required in order for the payment out of the RRSP to be deemed received by the surviving spouse as a benefit that is a refund of premiums. (2) The administrative relief set out in the RC4177 and RC4178 Information sheets and in the T4079 Guide receives application only where all the conditions are met, which includes that a direct transfer has to be made from the deceased’s RRSP to the surviving spouse’s RRSP or RRIF, or to an issuer to buy an eligible annuity for the surviving spouse. No other administrative relief is applicable in respect of the situation described. (3) The rules applicable to the RRIF are similar to the RRSP rules.
FINANCIAL STRATEGIES AND FINANCIAL INSTRUMENTS ROUNDTABLE, OCTOBER 7, 2020
2020 APFF CONFERENCE
Question 4
Transfer of a Registered Retirement Savings Plan on Death to a Surviving Spouse or Common-Law Partner and Form T2019 (footnote 1)
Subsection 146(8.8) of the Income Tax Act (footnote 2) provides that where the annuitant under an unmatured registered retirement savings plan ("RRSP") dies, the annuitant is deemed to have received, immediately before death, an amount as a benefit equal to the fair market value ("FMV") of all the property of the RRSP at the time of death. That amount must be included in computing the deceased annuitant's income in the year of death pursuant to subsection 146(8) and paragraph 56(1)(h). Except for the application of the administrative relief provided in Information Sheet RC4177 (footnote 3) "Death of an RRSP Annuitant" and Guide T4079 (footnote 4) "T4RSP and T4RIF Guide" (footnote 5), in such a case, a T4RSP slip (footnote 6) will be issued in the name of the deceased for the year of death.
Subsection 146(8.9) permits a reduction in all or part of the deemed benefit received by the deceased annuitant under subsection 146(8.8) where amounts qualify as a "refund of premiums" as defined in subsection 146(1). The amount that qualifies as a "refund of premiums" paid to the surviving spouse or common-law partner ("Spouse") and that was subject to a reduction in the deceased annuitant's tax return must be included in the surviving Spouse's tax return for the year in which the payment was made from the deceased's RRSP account. The surviving spouse may defer the taxation of all or part of the "refund of premiums" by transferring an amount to an RRSP or a registered retirement income fund ("RRIF") or for the purchase of an eligible annuity.
For an amount to qualify as a "refund of premiums" within the meaning of subsection 146(1), a first condition requires that the amount be paid to a person who was immediately before the death of the annuitant, inter alia, the annuitant's spouse.
A second condition requires that the amount be paid under an RRSP as a consequence of the death of the annuitant under the plan.
If the Spouse has been named as the beneficiary of the RRSP, either in the RRSP contract or by virtue of a valid beneficiary designation in the will (not a legacy in the will), the RRSP proceeds will be paid directly to the Spouse without passing through the estate. The amount so paid will qualify as a "refund of premiums" without any further formality.
However, where the deceased annuitant's RRSP proceeds pass through the annuitant's estate and the surviving spouse receives the RRSP proceeds from the estate, the surviving spouse does not receive the RRSP proceeds as a consequence of the annuitant's death. The definition of "refund of premiums" in subsection 146(1) is therefore not satisfied.
In such a case, subsection 146(8.1) allows an amount paid to the deceased annuitant's legal representative to be deemed to qualify as a "refund of premiums" if the following two conditions are satisfied:
- the Spouse is the beneficiary under the annuitant's estate;
- the annuitant's legal representative and the Spouse jointly file Form T2019 to designate some or all of the amounts paid to the estate as a "refund of premiums" received by the surviving Spouse.
Thus, where an amount from a deceased annuitant's RRSP is paid to the surviving Spouse under a universal legacy, a legacy by universal title, or by way of intestate succession, an election will be required to be made jointly by the Spouse and the deceased's legal representative on Form T2019 in order for the RRSP proceeds paid to qualify as a "refund of premiums”.
If the RRSP is instead the subject of a legacy by particular title, opinions appear to be divided as to whether Form T2019 is required. The first opinion is that if the RRSP proceeds are paid by the RRSP issuer directly to the Spouse, given that upon the death of the annuitant the legatee by particular title is seized of the right to the bequeathed thing (footnote 7) (which legatee is not an heir but rather a creditor of the estate), the filing of Form T2019 would not be required. The other view is that, since the seisin of the liquidator takes precedence over the seisin of the legatee by particular title (footnote 8), even when the payment is made by the RRSP issuer directly to the Spouse, the amount being in such a case implicitly under the control of the estate, Form T2019 would be required to be filed.
Thus, it must be recognized that from a legal perspective, there can sometimes be complexity in determining whether the amounts were paid to the surviving spouse or instead were under the control of the deceased annuitant's legal representative, and therefore whether or not Form T2019 should be completed, particularly in the presence of a particular legacy. In our view, the instructions in Form T2019, the T4079 Guide and the RC4177 Information Sheet also add to the confusion in that regard.
Questions to the CRA
(a) Where an unmatured RRSP is the subject of a particular legacy to the deceased annuitant's spouse and the RRSP proceeds are distributed by the RRSP issuer directly to the surviving spouse, does the CRA require Form T2019 to be filed?
(b) In Quebec, unless there is a valid beneficiary designation or the administrative relief provided in Information Sheet RC4177 and Guide T4079 applies, it is difficult to meet the definition of "refund of premiums" under subsection 146(1). In such a situation, Form T2019 must be filed in order for an amount paid to the Spouse of the deceased annuitant to qualify as a "refund of premiums" pursuant to subsection 146(8.1).
In such a context, although the proceeds of a deceased annuitant's unmatured RRSP are to be paid to the annuitant’s Spouse pursuant to a legacy by universal title, a universal legacy, a legacy by particular title (footnote 9) or pursuant to intestate succession, if the RRSP proceeds were, at the request of the deceased annuitant's executor, to be delivered by the RRSP issuer directly to the surviving Spouse (without first passing through an account in the name of the estate), would CRA be open to providing administrative relief so that the payment could qualify as a "refund of premiums" without requiring the filing of Form T2019?
(c) Would the answers to those two questions be the same for a RRIF with the necessary modifications, pursuant to subsection 146.3(6.1) and the definition of "designated benefit" in subsection 146.3(1)?
CRA Response to Question 4(a)
Where the annuitant of an RRSP dies before maturity, any amount paid out of the RRSP as a result of the annuitant's death (footnote 10) to a person who was, immediately before the annuitant's death, the annuitant's Spouse is a "refund of premiums" within the meaning of subsection 146(1).
Where the Spouse is named as the beneficiary of the RRSP by virtue of a valid beneficiary designation in the RRSP contract or in the annuitant's will, the CRA considers the amount received by the Spouse from the RRSP to be paid to the Spouse under the RRSP as a consequence of the annuitant's death. The amount received by the Spouse may therefore be considered a refund of premiums without any further formality. On the other hand, where the proceeds of a deceased annuitant's RRSP are paid to the annuitant's legal representative (footnote 11) and the Spouse is the beneficiary of the estate, the Spouse has not received the amounts out of or under the RRSP. This situation does not satisfy the definition of "refund of premiums" under subsection 146(1).
In such a situation, subsection 146(8.1) provides that an amount paid in a taxation year out of or under a deceased annuitant's RRSP to the deceased annuitant's executor that would have been a refund of premiums if it had been paid directly to the Spouse beneficiary of the estate is deemed, to the extent that the legal representative files an election with the Spouse beneficiary on Form T2019, to have been received by the Spouse beneficiary at the time of the payment, as a benefit that is a refund of premiums.
The joint election provided for in subsection 146(8.1) is required in all cases where the Spouse is entitled to the RRSP proceeds, not by virtue of a valid beneficiary designation, but rather as legatee or heir of the deceased annuitant, the RRSP proceeds then forming part of the deceased annuitant's estate. The joint election is therefore required even where the unmatured RRSP is the subject of a particular legacy to the Spouse under the deceased annuitant's will.
Since the executor exercises the seisin of the legatee by particular title at the formation of the estate (footnote 12), in such a case, the amount paid under the deceased annuitant's RRSP is part of the annuitant’s estate, with the result that such an amount would not qualify as a "refund of premiums" within the meaning of subsection 146(1), even though the proceeds of the RRSP are paid by the issuer of the RRSP directly to the surviving spouse in accordance with the instructions of the executor. In such a situation, although the amount is not paid to the executor, it is the executor who has control over the amount by virtue of the seisin exercised by the executor. Consequently, the amount paid is considered to be paid to the executor, since it is paid according to the executor’s instructions. Thus, as specified in subsection 146(8.1), the executor and the Spouse will have to file Form T2019 jointly if they wish to designate the amounts that the estate received (or, as the case may be, is considered to have received) from the deceased annuitant's RRSP as a refund of premiums received by the Spouse.
CRA Response to Question 4(b)
Both Information Sheet RC4177and the T4079 Guide provide administrative relief under certain specific conditions regarding the filing of the T4RSP slip. Under this relief, where the Spouse is the sole beneficiary of the unmatured RRSP (footnote 13) and the entire refund of premiums is transferred directly to an RRSP or RRIF under which the Spouse is the annuitant, or to an issuer to buy an eligible annuity for the Spouse before December 31 of the year following the year of death, only a T4RSP slip in the Spouse's name needs to be issued (footnote 14). This relief means that the issuer does not have to issue the T4RSP slip that would normally be issued in the name of the deceased annuitant. The determination of whether the beneficiary of the RRSP is the Spouse is a question of fact and law that can only be determined after a full review of the applicable private law, the terms of the RRSP contract and/or will and all the relevant facts surrounding each situation.
Since in Quebec a beneficiary designation is only possible in limited circumstances, the T4079 Guide provides an administrative exception for this administrative relief that is only applicable in Quebec. Under this exception, if the provisions of the will clearly identify the beneficiary of the estate as the Spouse and the other conditions for administrative relief are satisfied, the T4RSP slip can be issued in the name of the Spouse as if the Spouse had been the beneficiary of the RRSP. The administrative relief for filing the T4RSP slip does not apply where the RRSP proceeds are paid to the Spouse rather than being transferred directly to an RRSP or RRIF under which the Spouse is the annuitant, or are used by the issuer to buy an eligible annuity for the Spouse. Consequently, the administrative exception applicable only in Quebec has no application in such circumstances.
No further administrative relief is provided for the situation described where the RRSP proceeds are paid to the Spouse rather than being transferred directly to an RRSP or RRIF under which the Spouse is the annuitant, or being used by the RRSP issuer to purchase an eligible annuity for the Spouse.
CRA Response to Question 4(c)
Where the legal representative of the last deceased annuitant of a RRIF receives an amount that qualifies as a "designated benefit" of an individual within the meaning of subsection 146.3(1), subsection 146.3(6.1) deems that designated benefit to be received by the individual out of or under the fund at the time it is received by the legal representative, and not to be received out of or under the fund by any other person.
As in the case of an RRSP, where the Spouse is named as the beneficiary of the RRIF under a valid beneficiary designation in the RRIF contract or in the last annuitant's will, the amount paid to the Spouse will be considered a designated benefit of the Spouse without any formality under paragraph (b) of the definition of "designated benefit" in subsection 146.3(1).
In the absence of a valid beneficiary designation, amounts paid out of a RRIF after the death of its last annuitant to the annuitant's legal representative must be designated jointly on Form T1090 (footnote 15) filed with the Minister by the legal representative and the individual to qualify as a "designated benefit" under paragraph (a) of the definition of "designated benefit" in subsection 146.3(1). Such a designation is possible where the amounts paid would be a "refund of premiums" as defined in subsection 146(1), if they had been paid to the Spouse under the RRIF and the RRIF was an unmatured RRSP before death.
In the situation where the Spouse is entitled to the RRIF proceeds as legatee or heir of the last deceased annuitant and the executor directs that the amounts paid out of the RRIF after the death of its last annuitant be paid directly to the Spouse instead of first being paid into an account in the name of the estate, a joint designation on the prescribed form under paragraph (a) of the definition of "designated benefit" in subsection 146. 3(1) would therefore be required in order for the Spouse to be deemed under subsection 146.3(6.1) to have received a designated benefit.
The RC4178 Information Sheet (footnote 16) and the T4079 Guide provide administrative relief on the filing of the T4RIF slip (footnote 17) similar to the administrative relief applicable to RRSPs, as explained in response to (b). The exception applicable only to Quebec is also applicable to RRIFs, pursuant to the T4079 Guide. Like the administrative relief, however, this exception does not apply where the RRIF proceeds are paid to the Spouse rather than being transferred directly to an RRSP or RRIF under which the Spouse is the annuitant, or are used by the issuer to purchase an eligible annuity for the Spouse. No other administrative relief is applicable in the circumstances.
In conclusion, the CRA recognizes that the wording of the administrative relief for the filing of the T4RSP and T4RIF slips, as set out in Information Sheets RC4177 and RC4178, as well as in the T4079 Guide, and the administrative exception applicable only to Quebec, may have caused confusion in some respects. As a result, the wording of the administrative relief is currently under review. The Quebec-only exception is currently under review.
Nathalie Boyer
(450) 926-7039
October 7, 2020
2020-085162
Response approved by:
Sébastien Lalonde
Interim Manager
Investment Plans Section
Third Party Returns Division
Individual Returns Directorate
Assessment, Benefit, and Service Branch
(343) 551-9060.
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Form T2019, “Deceased Annuitant's RRSP - Refund of Premiums”
2 R.S.C. 1985, c. 1 (5th Supp.) (the “Act”).
3 CANADA REVENUE AGENCY, Information Sheet RC4177, “Death of an RRSP Annuitant”.
4 CANADA REVENUE AGENCY, T4079 “T4RSP and T4RIF Guide”
5 Under the administrative relief provided in Information Sheet RC4177 and Guide T4079, a T4RSP slip does not have to be issued in the name of the deceased for the year of death if the surviving spouse or common-law partner is named as the sole beneficiary of the RRSP under a valid beneficiary designation and all of the property in the RRSP is transferred directly, for example, to an RRSP under which the spouse or common-law partner is the annuitant. Where this relief applies, only a T4RSP slip in the name of the surviving spouse or common-law partner should be issued. The T4079 Guide also states that since it is not possible to make a valid beneficiary designation for certain RRSPs in Quebec, the RRSP issuer can issue the slip as if a designation had been made where the provisions of the will clearly identify the spouse or common-law partner as being entitled to the RRSP proceeds. We understand that this particular Quebec exception also applies for the purposes of Information Sheet RC4177, although it is not specifically referred to in the latter.
6 CANADA REVENUE AGENCY, T4RSP slip, “Statement of RRSP income”
7 Article 739 of the Civil Code of Quebec (“CCQ”).
8 Article 777 CCQ and conclusions of the Supreme Court of Canada in Hall v. Quebec (Deputy Minister of Revenue), [1998] 1 S.C.R. 220. See Marc Jolin, "Les régimes enregistrés et le décès", in Colloque - La planification successorale, Montreal, Association de planification fiscale et financière, 2002, pages 12 and 13.
9 If the answer to question (a) is no.
10 With the exception of a tax-free amount in relation to the RRSP.
11 Within the meaning of subsection 248(1), the term "legal representative" includes a liquidator.
12 Art. 777 CCQ
13 In accordance with a valid beneficiary designation in the will or RRSP contract.
14 Where the conditions set out therein do not apply, a T4RSP slip must be issued in the name of the deceased annuitant for the year of death, recognizing an amount equal to the FMV of all property held in the RRSP at the time of death.
15 CANADA REVENUE AGENCY, Form T1090, “Death of a RRIF Annuitant - Designated Benefit or Joint Designation on the Death of a PRPP Member”
16 CANADA REVENUE AGENCY, Information Sheet RC4178, “Death of a RRIF Annuitant or a PRPP Member”.
17 CANADA REVENUE AGENCY, T4RIF slip, “Statement of Income from a Registered Retirement Income Fund”.