Principal Issues: [TaxInterpretations translation] Does the Act allow the splitting of income from a RRIF in a particular situation?
Position: Not in the particular situation.
Reasons: An amount deemed received by virtue of subsection 146.3(6) is not a payment under a registered retirement income fund for the purposes of the definition of "pension income" in subsection 118(7).
FINANCIAL STRATEGIES AND INSTRUMENTS ROUNDTABLE 5 OCTOBER 2012
APFF 2012 CONFERENCE
Question 8 - Pension income splitting
Consider the following situation:
1. Mr. X was a resident of the Province of Quebec. Mr. X was married for the second time to Ms. X, who was also a resident of Quebec.
2. On April 9, 2011, Mr. X died at the age of 76.
3. At the time of his death, Mr. X held a registered retirement income fund ("RRIF") with an FMV of $200,000 (the "RRIF Benefit").
4. For the 2011 taxation year, the RRIF Benefit (of $200,000) was entered in Box 18 of the T4RIF slip of Mr. X (the "Slip").
5. Under Mr. X's will, his son is a beneficiary of the RRIF.
6. The liquidator of Mr. X's succession wishes to split the RRIF benefit with Ms. X. Thus, this split must be reflected on the prescribed Form T1032 "Joint Election to Split Pension Income" in Mr. X's final return as well as in Ms. X's 2011 income tax return.
Under subsection 60.03(2) of the Act, where a joint election has been made between a "pensioner" as defined in subsection 60.03(1) of the Act (Mr. X) and a "pension transferee" within the meaning of subsection 60.03(1) (Ms. X), a "split pension amount" may be deducted from Mr. X's income and included in Ms. X's income for the 2011 taxation year.
The amount that is the subject of the election referred to as the "split pension amount" as defined in subsection 60.03(1) is an amount not exceeding 50 percent of Mr. X's "eligible pension income" for the year, as defined in subsection 118(7).
For an individual who has attained the age of 65 years, the "eligible pension income" is the "pension income" received in the year as defined in subsection 118(7). Consequently, the "pension income" of an individual 65 years of age and over includes any amount received in a taxation year as a payment under a RRIF.
Under subsection 146.3(6), when a RRIF annuitant dies, that annuitant is deemed to have received, immediately before death, an amount equal to the FMV of all property held in the RRIF at the time of death.
Questions to the CRA
1) Based upon our analysis, the Income Tax Act appears to allow for the splitting of the RRIF benefit in Mr. X's situation outlined above. Do you agree with our interpretation? If not, what provision(s) of the Income Tax Act does not allow such splitting?
2) In the case of a positive answer to question 1, the instructions to complete the Form T4RIF upon the death of an RRIF holder provide that that amount, being the FMV of all property held in the RRIF at the time of the annuitant's death, must be entered in Box 18 of the Slip. Amounts shown in that Box do not appear to be eligible for pension income splitting permitted by virtue of 60.03(2). Does the CRA agree with that interpretation?
3) Does the CRA provide corrective measures to ensure that the forms allow splitting to which there is entitlement under the Income Tax Act?
CRA Response
The amount that a pensioner can split with a pension transferee is the "split pension amount" as that term is defined in subsection 60.03(1). That amount is determined using a formula that takes into account the "eligible pension income" of the pensioner for the year.
Under subsection 118(7), "eligible pension income" for an individual who has attained the age of 65 years before the end of the taxation year corresponds to the "pension income" received by the individual in the taxation year.
Under subsection 146.3(6), the last annuitant under a RRIF will be deemed, upon death, to have received, immediately before death, an amount out of or under a RRIF equal to the FMV of the property of the fund at the time of the death.
The CRA is of the view that an amount deemed received by virtue of subsection 146.3(6) is not a payment under a RRIF for the purposes of the definition of "pension income" in subsection 118(7). Consequently, an amount deemed received by virtue of subsection 146.3(6) is not eligible for pension income splitting permitted by virtue of section 60.03.
Isabelle Landry
(450) 623-0193
October 5, 2012
2012-045315