5-902842
Dear Sirs:
Re: Registered Retirement Savings Plan ("RRSP")
This is in reply to your letter of October 9, 1990 wherein you request our opinion concerning a situation where an annuitant's spouse is bequeathed a one-half interest in an RRSP.
You have described two scenarios, one where the death of the annuitant occurs prior to the maturity of the RRSP and one where it occurs subsequent to its maturity.
Annuitant's Death Before Maturity
i) Where the annuitant's spouse is entitled to only one-half of the assets in the RRSP, such one-half interest will qualify as a refund of premiums and the amount of such refund can be transferred to the spouse's own RRSP pursuant to paragraph 60(1) of the Income tax (the "Act").
ii) Whether the spouse's entitlement arises under the will of the annuitant or by virtue of a designation under the RRSP, the amount paid directly to the spouse will be deductible under subsection 146(8.8) of the Act from the income of the deceased.
iii) Furthermore, where the spouse and legal representative elect to deem the spouse to have received a refund of premiums under subsection 146(8.1) of the Act, such amount will be deductible from the income of the deceased under subsection 146(8.9) of the Act and will be included in the spouse's income under subsection 146(8) of the Act.
The spouse will be entitled, under paragraph 60(1) of the Act, to transfer the amount paid to his/her RRSP and to deduct from his/her income for a taxation year the amount so transferred provided all other requirements under paragraph 60(1) of the Act have been met.
However, for subsections 146(8.1) and 146(8.9) and paragraph 60(1) of the Act to apply, the spouse must in fact be entitled to receive an amount and said amount must be paid to or on behalf of him/her. We refer you to the definition of "refund of premiums" as found in subparagraph 146(1)(h) of the Act where it is stated "refund of premiums" means any amount paid to a spouse of the annuitant, as a consequence of his death, out of or under a registered retirement savings plan of the annuitant prior to its maturity...".
Annuitant's Death After Maturity
i) It is our opinion that subsection 146(8.91) of the Act was intended to apply to situations where only the spouse was entitled to receive the funds out of the RRSP. It is to be noted that paragraph 146(8.91)(a) of the Act states "the spouse shall be deemed to have become the annuitant..." which is not the situation where there is more than one annuitant.
ii) The annuity would have to be commuted pursuant to paragraph 146(2)(c.2) of the Act since it is also payable to a person other than the annuitant.
iii) Subsection 146(8.8) of the Act provides for a deemed receipt of benefits immediately before the annuitant's death equal to the fair market value of the property in the RRSP's, where the RRSP did not mature before June 30, 1978 and the annuitant dies after June 29, 1978. Paragraph 146(8.8)(b) of the Act provides for a deduction of "the portion thereof that, as a consequence of his death, becomes receivable by his spouse...".
In the situation presented, the spouse is entitled to half the property in the deceased's RRSP under the terms of the will. Consequently, the amount to be paid to the spouse will be deductible under subsection 146(8.8) of the Act from the income of the deceased. The spouse will include the amount received in her income pursuant to subsection 148(8) of the Act.
Accordingly, since the above circumstances require a commutation of the annuity, the spouse will not be entitled to rollover any amount to her own RRSP because the requirements under paragraph 60(1) of the Act have not been met.
Other
Finally, you present a situation where the spouse is the sole beneficiary under the deceased's plan, either by the terms of the deceased's will or pursuant to the plan, and the spouse is deemed to be the annuitant under subsection 146(8.91) of the Act.
The spouse would be entitled to commute the annuity under subparagraph 146(2)(b)(ii) of the Act but any transfer pursuant to clause 60(1)(v)(C) of the Act must be done by a direct transfer from the issuer of the first RRSP to the issuer of the second RRSP.
We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate