F. Francis (613)957-3498 March 24, 1988
Dear Sirs:
This is in reply to your letter of March 3, 1986, wherein you requested our comments with respect to the tax consequences resulting from the payment of benefits, on the death of a member of a registered pension plan ("RPP"), to a beneficiary other than the member's spouse.
We will respond to your questions in the same order that they were posed.
1. Pursunt to our telephone conversation on March 15, 1988 (Francis/ XXXX you advised us that your questions are based on the assumption that the member's death occurs before retirement. Paragraph 9(e) of our Information Circular 72-13R7 states that a RPP may make a lump sum payment of an amount representing a return of contributions, with or without interest, to a beneficiary other than the spouse. Such payment of contributions will be considered to be superannuation or pension benefits as that term is defined under subsection 248(1) of the Income Tax Act (the "Act"). As a consequence thereof, the superannuation or pension benefits will be included in the income of the beneficiary pursuant to subparagraph 56(1)(a)(i) of the Act and will be eligible for a transfer to a registered retirement savings plan ("RRSP") within the provisions of paragraph 60(j) of the Act.
2. You enquire as to whether the RPP may provide for a direct transfer of benefits to an RRSP without withholding tax on that amount.
We direct your attention to paragraph 15(a) of our Information Circular IC 79-8R2 wherein it states that a taxpayer may complete Form TD2 in respect of a request for waiving of withholding tax in a situation where there is a direct transfer of superannuation or pension benefits from the trustees of a RPP to the issuer of a RRSP.
3. You further enquire as to whether a RPP can arrange for a transfer of the benefits described above to an RRSP, even though the plan provisions do not expressly provide for such a transfer. In our view, the comments outlined in the preceding paragraph should be applicable, notwithstanding that the RPP provisions do not specifically provide for such a transfer. However, it should be noted that, pursuant to paragraph 24 of our Information Circular 79-8R2, a transfer of funds out of a RPP in a manner not provided for in the plan nay prejudice the continued registration of the RPP.
The above comments are an expression of opinion only and are not binding on the Department. They are, however, our best interpretation of the relevant legislation as it applies generally and we trust they are of assistance to you.
Yours truly,
for Director Financial Industries Division Rulings Directorate