7-903625
Subject: Paragraph 21(1)(1) of the Income Tax Act (the "Act")
This is in reply to your memorandum of December 18, 1990 with documents attached, concerning the application of paragraph 212(1)(1) of the Act. The facts as summarized in your memorandum are as follows:
1)
24(1)
2) The Department in a letter dated March 26, 1980 to 24(1) 24(1) states,
"The Department will continue to recognize that "the spouse" be considered entitled to receive the refund from a RRSP despite the fact such funds may be payable to the estate. This will of course be provided the spouse can establish an "enforceable right" to the funds in question via their interest in the estate of the deceased annuitant."
3) Based on the above statement, a letter dated September 14, 1990 was sent by the Department to 24(1) concerning plans with no beneficiary designation. It states:
"In the absence of a beneficiary designation in a Quebec based RRSP, the Department recognizes the entitlement of the spouse to the RRSP funds of the deceased providing of course that the spouse can establish an enforceable right to those funds. Consequently, you need not make further submissions solely in this regard.
The refund of premiums from the Quebec based RRSP of the deceased to his spouse is a case in point. The copy of the death certificate and marriage contract which you furnished with your letter support your position. We are in agreement that form NRTA1 should be used to authorize exemption from Part XIII tax on the direct transfer of these qualifying amounts to the RRSP of the deceased's wife."
4) 24(1) subsequently replied to the Department's above- mentioned letter requesting confirmation of the Department's position. They refer to form NRTA1, reverse side, for the definition of qualifying amounts where under Item 3 appears the statement,
"(Amounts paid to the estate that are later designated by the deceased's spouse and the estate to be a refund of premiums do not qualify for transfer)."
24(1) then states its opinion in these terms:
"In our view, as RRSP trustee of a Quebec-based plan with no beneficiary designation since none is recognized under Quebec succession law, the only person with an enforceable right against the unmatured plan of a deceased annuitant is the legal representative. Accordingly, we are unable to make "a plan to plan transfer" as described in paragraph 45 of Interpretation Bulletin IT-500. Even if we were requested by the legal representative to pay RRSP proceeds to an RRSP of the deceased annuitant's surviving spouse, this would still be an "indirect" payment since only the legal representative has a right to the proceeds of the plan, and according to the reverse side of Form NRTA1, no 212(1) exemption from Part XIII tax is available."
Furthermore, 24(1) adds that it wants to be able to act upon the beneficiary designation in the plan itself, without resort to the deceased's Will, and in the absence of a designation, to make the payment to the legal representative. Their tax reporting "is made in accordance with subsection 146(8.8) of the Act as though paragraph (b) thereof were nil," because, as they view it, it "is a matter of will interpretation and the legal representative has the remedy of a joint designation under 146(8.1)".
Our Comments
It is a question of fact to be determined in each case whether Part XIII tax applies. Documents such as the Will must be verified to ascertain the right of the spouse to the RRSP funds.
It is not entirely clear that a transfer from the deceased's RRSP to the spouse's RRSP on the instructions of the legal representative would technically meet the provisions of the direct transfer requirement of paragraph 212(1)(1) of the Act. However, given the factual situation in the province of Quebec where a spouse cannot be named as a beneficiary in the RRSP, and in view of Source Deductions' position as outlined in their letter to 24(1) of September 14, 1990, we would have no objections to such an administrative position being taken in order to allow taxpayers in Quebec approximately the same benefits as those in the other provinces. We would also have no objection if you decided to extend Source Deduction's position to similar situations in other provinces.
It will be for the issuer of the RRSP and the legal representative to come to an understanding to have the direct transfer made. If the issuer refuses to make said transfer, there does not appear to be any measure the Department can take to assist the taxpayer. It is a matter to be settled between the parties involved.
We trust the above comments will be of assistance to you. Should you wish to discuss this matter further, you can contact Mrs. Maureen Shea-DesRosiers at 957-8943.
ChiefFinancial Industries DivisionRulings Directorate