Dear Sirs:
This is in reply to your letter of November 28, 1990 asking for our views on the tax treatment of certain amounts received as a result of the death of a taxpayer.
Our comments on the treatment of the different types of payments referred to in your letter are set out below.
1. Old Age Security Pension Canada Pension Plan Retirement Pension
For the month in which a person dies, his/her personal representative is entitled to the whole of the respective payments for that month, which is normally paid towards the end of the month.
Our Comments
Since the person's right to the amount is established at the beginning of the month, it is our view that the amounts are required to be included in the taxpayer's income under subsection 70(2) of the Income Tax Act (the "Act").
2. Pension Plan Entitlements
As you have indicated in your letter, where a deceased person is in receipt of a monthly pension entitlement, the terms of payment are governed by the pension plan itself or individual contracts with insurance companies. The date of payment of the pension amount will be governed by those agreements. Often the stipulated date of payment is the first of the month.
The deceased is entitled to the whole of the respective payment if alive at the payment date. If the deceased was not alive at the payment date, the terms of the particular plan will govern whether there is any continuing benefit, and to whom it is payable.
Our Comments
Assuming the deceased person was alive at the last payment date but had not received the payment, it is our view that the amount of the payment represents a right or thing that is required to be included in his income under subsection 70(2) of the Act. On the basis that no amount will be paid in respect of the deceased person for the time period between the payment date and the date of death, no amount is required to be included in his income under subsection 70(1) of the Act as the amount cannot be regarded as having "accrued in equal daily amounts for or in respect of which the amount was payable".
The above comments made in respect of your query are based solely on the information provided in your letter. Whether they are applicable to payments made under a particular plan can only be determined following a review of the relevant terms of that plan.
3. Canada Savings Bond Interest
At the time of death, Canada Savings Bonds are ordinarily valued for purposes of the estate at their redemption value for that month, in accordance with Monthly Redemption Tables published by the Bank of Canada. Those tables provide a stated redemption value for redemptions which occur at any time within that month.
Canada Savings Bonds come in two types: "Regular" where interest is paid each November 1st if not cashed prior thereto and "Compound" where interest is not paid until maturity or encashment.
In the circumstances, there will be no actual receipt of funds representing the interest element until encashment or the November 1st payment date for regular bonds.
Our Comments
In our view, interest earned on a compound interest Canada Savings Bond up to the November 1 interest date that precedes the date of death of a bondholder is considered to be a right for the purposes of subsection 70(2) of the Act, to the extent that the amount was not included or required to be included in the deceased's income for the year or a preceding year. Interest accruing from November 1 to the date of death is considered to be an amount referred to in paragraph 70(1)(a) of the Act and therefore not eligible for inclusion in a separate return under subsection 70(2) of the Act.
In the case of regular bonds, interest which has accrued from November 1 to the date of death is considered to be an amount referred to in paragraph 70(1)(a) of the Act. The matured, unclipped coupons are considered rights or things for the purposes of subsection 70(2) of the Act to the extent that the amount was not included or required to be included in the deceased's Income for the year or a preceding year.
4. Treasury Bills
Government of Canada T-Bills, or provincial or commercial paper, are valued for purposes of the estate at their market value at date of death. As such securities are purchased at a discount, the difference between the purchase price and fair market value is considered to be interest.
Treasury Bills or similar discount debt are issued for relatively short periods of time. For example Government of Canada T-Bills are issued for terms generally of 90, 180 or 364 days and do not pay interest until maturity or other realisation.
Our Comments
In our view, the accrued interest up to the day of death in respect of an unmatured Treasury Bill or similar discount debt is an amount described in subsection 70(1) of the Act. In the case of a matured Treasury Bill or similar discount debt obligation, it is our view that it is a right referred to in subsection 70(2) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch