5-913277
D. Duff
957-8953
24(1)
Attention: 19(1)
January 22, 1992
Dear Sir:
This is in response to your letter of November 21, 1991 and further to our letter of November 12, 1991, concerning the Department's position on the treatment of interest earned on depositary registered retirement savings plans (RRSPs) after the death of the annuitant.
As stated in our previous letter, a depositary RRSP is simply a deposit with a bank or other financial institution and the owner of the account is the annuitant under the RRSP. Normally, interest added to the account would be included in the income of the annuitant, as owner, pursuant to paragraph 12(1)(c) of the Income Tax Act (the "Act"), however, subsection 146(20) deems the annuitant not to have received such interest.
On the death of the annuitant the account becomes the property of another person, either the estate or a beneficiary, and interest earned in the account from that time will be included in the income of that person pursuant to paragraph 12(1)(c). At this point, subsection 146(20), which would have deemed the annuitant not to have received the interest, becomes redundant since the interest earned after his death would not have been included in his income anyway.
Paragraph 146(20)(b) of the Act cannot be interpreted to exclude interest earned in the account from the income of a person other than the annuitant since the subsection specifically states that "...the amount shall be deemed not to be received by the annuitant..." The exempting provision applies to the annuitant not to the property itself. It does not deem all interest earned on the property to be exempt from tax, rather, it deems the annuitant not to have received the interest and, as a result, he does not have to include it in income.
We trust this satisfactorily explains our position on this matter.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate