7-912643
Subject: Death of an RRSP Annuitant - Income Reporting
Your file: HAV 8282-4-2
This is in reply to your memorandum of September 9, 1991, regarding the treatment of income earned in an unmatured trusteed registered retirement savings plan (RRSP) after the death of the annuitant.
A trusteed RRSP is an inter vivos trust governed by a RRSP and pursuant to subsection 104(2) of the Act a trust is taxed as a separate person on its property. Paragraph 149(1)(r) and subsection 146(4) provide that a trust governed by a RRSP generally is not taxable on its Part 1 income but paragraph 146(4)(c) provides that such trusts become taxable in the year after the death of the last annuitant.
Subparagraph 146(1)(h)(i) defines a refund of premiums as an amount paid to a spouse of the annuitant as a consequence of his death prior to maturity. If it is not paid it cannot be part of a refund of premiums. As indicated in paragraph 22 of IT-500 the total amount paid out of a trusteed plan up to December 31 of the year of death can be included in the refund of premiums. This would consist of the value at the date of death plus the tax exempt income earned to December 31 of that year. However, this would represent a maximum for the refund of premiums, it still must be paid to actually be the refund of premiums.
Paragraph 24 of IT-500 assumes that there is income, and not a loss, after December 31 of the year of death. In that situation the payment made in the year after death would consist of the value of the trust property at December 31 plus the trust income earned after that date. The income earned after December 31 is taxable income earned in a trust and does not form part of a payment from a RRSP. Accordingly, it must be deducted from the total payment to determine the RRSP benefit, which could also be a refund of premiums. In the present case there is no income after December 31 so there is nothing to deduct from the total payment.
Your view of the proper treatment of this payment, as outlined in the first paragraph of the second page of your memorandum, is correct. The total payment of 24(1) is less than the value of the trust property at December 31, and, consequently the entire payment, and no more, should be both a benefit out of a RRSP and a refund of premiums. The loss of 24(1) has been incurred ln the trust and there is no provision for allocating a loss incurred in a trust to a beneficiary. Consequently, the T3 Supplementary should not report anything.
We trust this is satisfactory, however, if you have any further questions please contact David Duff.
DirectorFinancial Industries DivisionRulings Directorate