11 October 2019 APFF Financial Strategies and Instruments Roundtable
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The translations below of the CRA written responses were prepared by Tax Interpretations Inc. The CRA did not issue these responses in the language in which they now appear, and is not responsible for any errors in their translation that might impact a reader’s understanding of them or the position(s) taken therein. See also the general Disclaimer below.
This page contains our summaries of questions posed at the 11 October 2019 APFF Financial Strategies and Instruments Roundtable held in Montreal, Quebec together with our translations of the full text of the Income Tax Ruling Directorate’s provisional written answers (which were orally presented by Mélanie Beaulieu and Louise Roy). We have not summarized, or translated the responses to, Q.1 and Q.3, for which CRA indicated that the answers were still under consideration. Linked below are the published official responses (again, with the exception of Q.1 and Q.3), which have been translated in full by us.
We use our own titles, and footnotes are (depending on how routine they are) either excluded or moved to the body of the answer (but are included in our tranlations of the official reponses).
The (regular) 11 October 2018 APFF Roundtable is provided on a separate page.
Q.2 HBP eligibility following death of spouse
Monsieur had predeceased Madame, aged 58, three months before her purchase of a condo in July 2019, using funds withdrawn from her RRSP. Monsieur had been the sole owner of their home until his death, with the home then held by the estate before its sale.
(a) Is Madame eligible for home buyer plan (HBP) treatment and for the first-time home buyer’s credit (FHBTC)?
(b) If the estate had transferred the deceased’s home to her for her to occupy as her principal residence, would she be eligible for HBP treatment?
CRA Preliminary Response to Q.2(a)
To participate in the HBP, paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1) provides that the individual must not, at the time the individual withdraws an amount from the individual’s RRSP, have an owner-occupied home in the period that began at the beginning of the fourth preceding calendar year that ended before the year of withdrawal, and that ended on the 31st day before the date of the withdrawal.
Furthermore, paragraph (f) of the definition "regular eligible amount" in subsection 146.01(1) stipulates that the individual's spouse or common-law partner must not, during the same period, have an owner-occupied home that was inhabited by the individual during their marriage or common-law relationship. The CRA is of the view that if the individual does not have a spouse or common-law partner at the time of withdrawal of an RRSP amount, that condition is not applicable.
In the situation presented, since Madame does not have a spouse or common-law partner at the time of the withdrawal of an amount from her RRSP, being in July 2019, the condition set out in paragraph (f) of the definition "regular eligible amount" in subsection 146.01(1) would not be applicable. Furthermore, since she was not the owner-occupant of a home during the period beginning on January 1, 2015 and ending 31 days before the date of the withdrawal in July 2019, we are of the view that the condition in paragraph (e) of the definition "regular eligible amount" in subsection 146.01(1) is satisfied. Thus, if the other conditions set out in the definition of "regular eligible amount" are satisfied, Madame could participate in the HBP.
With respect to the FHBTC, subsection 118.05(3) provides a tax credit in computing an individual's tax for the taxation year in which a qualifying home is acquired. Subsection 118.05(1) defines a "qualifying home" to include a home in Canada that is acquired, whether jointly or otherwise, after January 27, 2009 and which satisfies the conditions of paragraph (a) of that definition.
Subparagraph (a)(i) of the definition of "qualifying home" in subsection 118.05(1) provides that the individual must intend to inhabit the home as a principal place of residence not later than one year after its acquisition.
Subparagraph (a)(ii) of the same definition provides that the individual must not own, whether jointly or otherwise, a home that was occupied by the individual in the period that began at the beginning of the fourth preceding calendar year that ended before the acquisition, and that ended on the day before the acquisition.
Subparagraph (a)(iii) of the same definition provides, inter alia, that the individual’s spouse or common-law partner did not, in the period referred to in subparagraph (ii), own, whether jointly or otherwise, a home that was inhabited by the individual during the marriage to or common-law partnership with the individual. The CRA is of the view that if the individual does not have a spouse or common-law partner at the time of the acquisition, that condition is not applicable.
In the situation presented, since Madame did not have a spouse or common-law partner at the time of acquisition of the home, the condition in subparagraph (a)(iii) of the definition "qualifying home" in subsection 118.05(1) is not applicable. Furthermore, since she was not the owner-occupant of a home during the period starting on January 1, 2015 and ending the day before the acquisition, we are of the view that the condition in subparagraph (a)(ii) of the definition of "qualifying home" in subsection 118.05(1) is respected. Thus, the home acquired in July 2019 could, if all the other conditions set out in paragraph (a) of the definition "qualifying home" in subsection 118.05(1) L.I.R. are otherwise satisfied, qualify as a "qualifying home" for the purposes of the FHBTC.
CRA Preliminary Response to Q.2(b)
The comments above with respect to paragraph (f) of the definition of "regular eligible amount" in subsection 146.01(1) are also applicable in such a situation.
However, paragraph (b) of that definition provides that, at the time of the withdrawal, the individual must have entered into an agreement in writing before the particular time for the acquisition of the home or with respect to its construction.
The Income Tax Act does not define the term "agreement in writing". However, for the purposes of the HBP, we consider that a person has entered into an agreement in writing provided that there is a series of correspondence or written documents that constitute, in their entirety, the offer made by an individual and its acceptance by another in connection with the acquisition.
The question of whether and at what time an agreement in writing to acquire a home is entered into in an estate context is a question of fact. Depending on the circumstances, various correspondence or other written documents could be considered together to constitute the offer made to the heir or the legatee and his or her acceptance in connection with the acquisition and thus be considered together as an agreement in writing for purposes of the HBC. In any event, and given the regime regarding the publication of rights provided for in the Civil Code of Quebec, we understand that any acquisition of an immovable by way of succession must, in Quebec, be the subject of a declaration of transmission that must be published to make the transfer of property enforceable against third parties. In that context, the CRA generally agrees that such a statement may be considered an agreement in writing for the purposes of the HBP.
Furthermore, it is only if all of the conditions in the definition of "regular eligible amount" in subsection 146.01(1) are satisfied that Madame could be eligible for the HBP in the situation described. In particular, in addition to the requirement in paragraph (e) above, the condition in paragraph (d) of that definition must be taken into account. That condition requires that neither the individual nor the individual’s spouse or common-law partner has acquired the home more than 30 days before the time of withdrawal.
Whether the conditions set out in paragraphs (d) and (e) of the definition "regular eligible amount" in subsection 146.01(1) are satisfied at the time of withdrawal in the situation described will depend on when the home is acquired, which is also a question of fact.
Official Response
Q.4 Effect of TFSA property value decrease on “exempt contribution”
Situation 1
Mr. X made a specific bequest of his TFSA to his spouse (Ms. Y), which had declined in value from $100,000 to $90,000 between death and its liquidation and transfer to Ms. Y, who contributed $100,000 to her TFSA. The residue was transferred to the surviving daughter.
Situation 2
Same as Situation 1 except that Ms. Y also received the residue of $200,000.
Situation 3
Same as Situation 1 except that the executor immediately liquidated the TFSA for $100,000 and invested it. Ultimately, $290,000 was distributed to Ms. Y.
Situation 4
Same as Situation 2 except that executor immediately transferred the TFSA property to an estate investment account, with such property diminishing in value to $90,000 before the proceeds of it and the residue of $200,000 were distributed to Ms. Y.
In Situations 1 and 2, were the survivor payments and "exempt contributions," as defined in s. 207.01(1) (the "Definition") $90,000 and $100,000, respectively – and what about Situations 3 and 4?
CRA Preliminary Response
Your question concerns the limit provided for in subparagraph (d)(i) of the Definition. That subparagraph essentially limits the amount of exempt contributions that may be paid in relation to a given "survivor payment" (within the meaning of paragraph (b) of the Definition) to the amount of that payment.
In order for a payment made to a survivor during the "rollover period" (within the meaning of paragraph (a) of the Definition) to be a survivor payment, it must meet the following conditions: it is made directly or indirectly out of or under an arrangement that ceased to be a TFSA because of the death of its last holder and 2) it is made as a consequence of the death of the individual.
The source of the payment is usually a question of fact. Given the words "directly or indirectly," a particular payment may qualify as a survivor payment, whether the money is paid directly to the survivor under the TFSA or first paid to the executor before it is paid by the executor to the survivor.
With respect to the issue of whether the payment is made as a consequence of the individual's death, paragraph 248(8)(a) provides, in particular, that a transfer, distribution or acquisition of property under or as a consequence of the terms of the will or other testamentary instrument of a taxpayer shall be considered to be a transfer, distribution or acquisition of the property as a consequence of the death of the taxpayer. Thus, to the extent that a particular payment is made in accordance with the provisions of the individual's will, the CRA is generally of the view that it is a payment made as a consequence of the individual's death.
Thus, where amounts from a deceased holder's TFSA are first paid to the executor of the estate before being paid by the executor to the survivor, the CRA is generally of the view that the survivor payment is equal to amounts paid under the TFSA to the estate of the deceased holder, to the extent that the survivor is entitled to a TFSA by virtue of the will of the deceased holder (whether as legatee by particular title, universal title, or universal) and the survivor receives an equivalent or higher amount from the estate as a result of the death of the deceased holder.
In Situation 1, the CRA agrees with your conclusion. The limit in subparagraph (d)(i) of the definition would be $90,000.
In Situation 2, the CRA's response would be the same as in Situation 1. In Situation 2, although Ms. Y receives $290,000 from the estate, the estate received only one payment $90,000 from the TFSA. The fact that Ms. Y received additional amounts from the estate does not alter that conclusion. Consequently, the limit in subparagraph (d)(i) of the Definition would be $90,000 in this case as well.
In both Situation 3 and Situation 4, Mr. X's estate received a payment of $100,000 from the TFSA, in cash or in kind, as the case may be. In such circumstances, the CRA is of the view that the survivor payment would be equal to the TFSA payments to the estate of $100,000, since Ms. Y is entitled to the TFSA and received at least an equivalent amount from the estate, in accordance with Mr. X's will.
Official Response
Q.5 Exempt contribution made before receipt of TFSA bequest
Mr. X, who died on January 1, 2018, had made a specific bequest of his TFSA (valued at death at $100,000) to his spouse (Ms. Y), which did not fluctuate in value following his death. On June 15, 2019, Ms. Y contributed $100,000 to her TFSA, which she designated as an “exempt contribution." Once the estate administration was completed and the TFSA liquidated, the executor paid $100,000 before December 31, 2019, i.e., before the rollover deadline in para. (a) of the s. 207.01(1) definition of “exempt contribution” (the “Definition”).
Could Ms. Y make the exempt contribution designation notwithstanding that she had not yet received the bequest?
CRA Preliminary Response
The Definition does not require that the contribution be made with the amounts received by the survivor (in this case, Ms. Y) as a survivor payment. Neither does the Definition require that the survivor payment be received before the contribution is paid. That being so, for a particular contribution to be designated as an "excluded contribution", all conditions of the Definition must be satisfied.
In particular, the contribution must be paid during the rollover period (as defined in paragraph (a)) and the payment to the survivor must be received during the rollover period (as required by paragraph (b)).
In addition, paragraph (c) of the Definition requires that the contribution be designated in prescribed form (Form RC240), within 30 days after the day on which the contribution is made (or at any later time that is acceptable to the Minister). In the situation described, it was not open to Ms. Y to file Form RC240 on June 15, 2019, since she had not yet received a survivor payment. Indeed, in order to be able to file Form RC240, Ms. Y must be able to make a determination of the maximum amount that qualifies as an excluded contribution, which, under subparagraph (d)(i) of the Definition, cannot be made before a survivor payment is received by Ms. Y. Thus, until Ms. Y has received a survivor payment, the amount of the contribution that may be designated is nil and no designation can be made under paragraph (c) of the Definition. It follows that unless she receives the survivor payment within 30 days of the time she made her contribution, Ms. Y will not be able to file Form RC240 within the 30-day period provided in paragraph (c) of the Definition.
In the event that Ms. Y receives a survivor payment more than 30 days after making her contribution but within the rollover period, she may request the exercise of Ministerial discretion in order to be able to file Form RC240 late. Only if the Minister accepts the filing of Form RC240 at a time after the expiry of the 30-day period may Ms. Y's contribution qualify as an excluded contribution.
In short, subject to the acceptance by the Minister of a late Form RC240, a contribution made more than 30 days before the survivor receives a survivor's payment cannot qualify as an excluded contribution. Thus, in the situation described, the $100,000 contribution made by Ms. Y on June 15, 2019 cannot be considered an excluded contribution if Ms. Y receives the $100,000 survivor payment on or after July 15, 2019 (although within the rollover period), unless the Minister allows her to file Form RC240 at a later date.
Note also that in such a situation, where she makes her contribution on June 15, 2019, Mrs. Y runs the risk that the contribution never qualifies as an excluded contribution. In fact, that qualification is dependent on future events, so that the contribution may never qualify as an excluded contribution, in particular if she never receives a survivor payment or if she is unable to file Form RC240 within the period provided in paragraph (c) of the Definition. If applicable, depending on the circumstances, the contribution made by Ms. Y on June 15, 2019 could result in a TFSA surplus and, consequently, a tax by virtue of section 207.02, beginning in the month of June, 2019.
Official Response
Q.6 Receipt and contribution of TFSA legacy by residuary beneficiary following disclaimer by daughter
Mr. X made a specific bequest of his TFSA to his adult daughter, with his surviving spouse (Ms. Y) being the residuary beneficiary. However, the daughter executed a written renunciation of the bequest, so that following the TFSA's liquidation, the $100,000 of TFSA proceeds were transferred to Ms. Y as residuary beneficiary (purusant to a clause in the will that provided for the TFSA to fall into the residue in the event of her renunciation). Ms. Y contributed $100,000 to her TFSA before December 31, 2019, i.e., the rollover deadline in para. (a) of the s. 207.01(1) definition of “exempt contribution” (the “Definition”).
Was Ms. Y permitted to designate her contribution as an “exempt contribution”?
CRA Preliminary Response
To satisfy paragraph (b) of the Definition, a payment directly or indirectly from an arrangement that ceased to be a TFSA on the death of the individual must be made to the survivor (within the meaning of subsection 146.2(1)) during the rollover period following the death of the individual. Such a payment is called the "survivor payment" in the Definition.
In order for a payment made to a survivor during the rollover period to be a survivor payment, the following conditions must be satisfied, namely: 1) it is made directly or indirectly from an arrangement that ceased to be a TFSA because of the death of the last holder and 2) it is made as a consequence of the individual's death.
In the situation described, the principal question is whether the payment is made as a consequence of the individual's death. In that regard, paragraph 248(8)(a) provides, in particular, that a transfer, distribution or acquisition of property made under a will of a taxpayer or as a consequence of such a will is considered to be a transfer, distribution or acquisition of property made as a consequence of the death of the taxpayer.
Furthermore, paragraph 248(8)(b) provides inter alia that a transfer, distribution or acquisition of property as a consequence of a disclaimer, release or surrender by a person who was a beneficiary under a taxpayer's will is considered to be a transfer, distribution or acquisition of property made as a consequence of the taxpayer's death.
For that purpose, subsection 248(9) defines "disclaimer" as including a renunciation of a succession made under the laws of the Province of Quebec that is not made in favour of any person, but does not include any disclaimer made after the period ending 36 months after the death of the taxpayer (or such longer period as the Minister considers reasonable in the circumstances, if any). The same subsection defines "release or surrender" as including a gift inter vivos made under the laws of the Province of Quebec of an interest in, or right to property of, a succession that is made to the person or persons who would have benefited if the donor had made a renunciation of the succession that was not made in favour of any person, to the extent that the release or surrender is made within the aforementioned period.
In the situation described, the CRA is generally of the view that the payment of $100,000 made by the executor to Ms. Y of the TFSA proceeds would be a payment made as a consequence of Mr. X's death by virtue of subsection 248(8).
It should also be noted that to the extent that the effect of the renunciation by Mr. X's daughter of her specific bequest is, under applicable private law, to increase the residue of the estate to which Ms. Y is entitled, CRA would come to the same conclusion, even in the absence of a specific clause in the will stipulating what happens to the TFSA in the event of a renunciation by Mr. X’s daughter of her bequest.
Official Response
Q.7 TFSA contribution where tardy distribution of deceased spouse’s TFSA
Mr. X, who died on January 1, 2018, made a specific bequest of his TFSA to his surviving spouse (Ms. Y). However, the estate administration proceeded slowly, and it was not until after December 31, 2019, i.e., the rollover deadline in para. (a) of the s. 207.01(1) definition of “exempt contribution” (the “Definition”), that the executor liquidated the TFSA and paid the proceeds of $100,000 (also corresponding to the TFSA’s value on death) to Ms. Y.
Is Ms. Y permitted to make a contribution to her TFSA as an “exempt contribution” upon receipt of the funds?
CRA Preliminary Response
A contribution can qualify as an exempt contribution to the extent that it satisfies all the conditions set out in the Definition. In particular, paragraph (b) requires that a survivor payment be made to the survivor during the rollover period.
Paragraph (a) of the Definition defines the "rollover period" for the purposes of the Definition as the period that begins when the individual dies and that ends at the end of the first calendar year that begins after the individual dies (or at any later time that is acceptable to the Minister). Thus, paragraph (a) of the Definition gives the Minister the discretion to extend the rollover period. In such a case, the rollover period so extended shall be relevant not only for the purposes of paragraph (a) but also for the purposes of paragraph (b). As a result, a survivor payment made after December 31 of the first calendar year that begins after the death of the TFSA holder could satisfy the conditions of paragraph (b) of the Definition, provided that the Ministerial discretion is exercised to extend the rollover period. Thus, in the situation described, Ms. Y could, after receiving the amounts paid by the executor, make a contribution to her own TFSA and designate it as an exempt contribution, if the Ministerial discretion is exercised in her favour to extend the rollover period.
Official Response
Q.8 Minimum amount where RRIF transferred to surviving spouse in year subsequent to death
Monsieur, who died in November, bequeathed all his RRIF to his surviving spouse. In 2016-0651711C6 F, CRA indicated that even if Monsieur had withdrawn the minimum amount before his death, if the transfer of the RRIF to the surviving spouse was not effected until the subsequent year, the amount which could be transferred free of tax was reduced by the minimum amount for that subsequent year by virtue of the s. 146.3(6.11) formula. This reduction would not occur if the transfer occurred in the year of death.
(a) In computing the minimum amount for that subsequent year respecting the RRIF of the deceased, should one use the age of the deceased on January 1 of the calendar year of his death, his age on January 1 of the subsequent year or the age of the surviving spouse on January 1 of the year of the transfer to her RRIF or RRSP?
(b) Assuming that the death occurred before the deceased withdrew the minimum amount for the year of death, but the transfer of his RRIF to the surviving spouse was not made until the following calendar year, does the minimum amount impact on the RRIF of the deceased occur once, namely only in the year subsequent to that of death?
CRA Preliminary Response to Q.8(a)
The calculation of the minimum amount under the RRIF for the year is provided in the definition of "minimum amount" in subsection 146.3(1). Generally, the minimum amount under the arrangement for a year is the FMV of property held in connection with the RRIF at the beginning of the year, multiplied by a prescribed factor for the year.
Under Element B of the definition of "minimum amount" in subsection 146.3(1), the prescribed factor can correspond to the age of the first annuitant under the RRIF, or if the first annuitant so elects before the issuer makes a payment out of the RRIF, the age of the spouse or common-law partner at the time of the election. The prescribed factor for the year is the factor in the table, as applicable, in subsections 7308 (3) and (4) of the Income Tax Regulations that corresponds to the age in whole years attained by the individual at the beginning of that year or that would have been so attained by the individual if the individual had been alive at the beginning of that year.
As stated in Question 2 of the 2016 APFF Financial Strategies and Instruments Roundtable, for purposes of calculating the eligible amount determined under subsection 146.3(6.11), the taxation year referred to in that subsection is the taxation year referred to in paragraph 60(l), i.e., the year of the inclusion of the designated benefit in computing the income of the spouse or common-law partner income under subsection 146.3(5).
Thus, in a situation where the prescribed factor is the age of the first annuitant of the RRIF, the minimum amount for the year, as set out in B and C of the formula in subsection 146.3(6.11), is based on the age in whole years that the deceased annuitant would have attained at the beginning of the year had he or she been alive in the taxation year in which the designated benefit was included in computing the income of the spouse or common-law partner.
CRA Preliminary Response to Q.8(b)
The term "retirement income fund" is defined in subsection 146.3(1) as an arrangement between a carrier and an annuitant under which, in consideration for the transfer to the carrier of property, the carrier undertakes to pay amounts to the annuitant and, where the annuitant so elects, to the annuitant’s spouse or common-law partner after the annuitant’s death. In each year, the carrier must pay amounts totalling at least the minimum amount under the arrangement for the year, but each payment may not exceed the value of the property held under the RRIF immediately before the time of the rollover payment. The definition of "minimum amount" in subsection 146.3(1) of the Income Tax Act requires that payments begin no later than the first calendar year following the year in which the RRIF arrangement was entered into.
There is therefore no requirement for a RRIF issuer to pay the minimum amount by withdrawing from a retirement income fund after the death of the last annuitant.
Subsection 146.3(6.11) determines the eligible amount that may be claimed by inter alia the spouse or common-law partner of the last annuitant under a RRIF, for the purpose of subparagraph 60(l)(v). The eligible amount is the portion of the designated benefit that is included in computing the income of the spouse or common-law partner under subsection 146.3(5) for the year less a specified proportion of the designated benefit. That specified proportion is equal to the minimum amount to be withdrawn from the RRIF for the year, other than a portion of that amount that was included in computing the annuitant's income for the year under the RRIF, divided by the total of the designated benefits for the RRIF for the year.
Thus, the eligible amount determined under subsection 146.3(6.11) that may be deducted in computing the income of the spouse or common-law partner under paragraph 60(1), provided the conditions set out in that paragraph are satisfied, is calculated excluding the portion of the minimum amount to be withdrawn out of the RRIF that was not paid in the year where the spouse or common-law partner has received the designated benefit under subsection 146.3(5).
Where the designated benefit is received by the spouse or common-law partner in the year following that of the death of the last annuitant of a RRIF, the eligible amount will be equal to the designated benefit after deducting the minimum amount to be withdrawn from the RRIF for the year in which the benefit is received.
Official Response
Q.9 Whether deemed payment under RRIF is pension income
Is a “payment received” from a RRIF considered to be a “payment out of or under” a RRIF for purposes of the definition of “pension income” in s. 118(7). If yes, how can 2012-0453151C6 and 2017-0685001E5 be reconciled?
CRA Preliminary Response
For an amount to be considered as “a payment out of or under a registered retirement income fund” for the purposes of subparagraph (a)(iii) of the definition of "pension income" in subsection 118(7), the amount must be paid in satisfaction of an obligation between the issuer and the annuitant of a RRIF.
In Question 8 of this Roundtable of October 5, 2012, the CRA clarified that an amount deemed to be received under subsection 146.3(6) by the deceased last annuitant of a RRIF is not a payment provided out of or under a RRIF. Indeed, when subsection 146.3(6) applies, no payment is actually made by the RRIF's carrier to the deceased last annuitant.
Consequently, an amount that is deemed to be received under subsection 146.3(6) is not eligible for pension income splitting under section 60.03, nor for the pension tax credit under subsection 118(3).
As part of Question 2 of the October 6, 2017 Roundtable, the CRA was asked whether it was possible to claim the deduction under subsection 146(8.2) in computing income in the year of the annuitant's death, in the event that an individual over-contributed to the individual’s RRSP in a taxation year and died in the subsequent taxation year. The taxpayer died before withdrawing excess premiums from the RRSP, which the taxpayer did not deduct pursuant to subsection 146(5).
Under the conditions for the application of subsection 146(8.2), in order for an amount to be deductible in respect of a taxpayer in a particular taxation year, it is required inter alia that a payment from an RRSP in respect of undeducted premiums of the taxpayer, be received by the taxpayer in the year and that such payment is otherwise included in computing the taxpayer’s income for the year.
In the situation described, since the taxpayer died before having withdrawn the deducted premiums, the taxpayer would no longer be able to receive any payments related to those premiums. However, in its response, the CRA indicated that in that specific context, it "generally accepts that an amount deemed to be received by a deceased annuitant under subsection 146(8.8) and included in the annuitant’s income for the year of death under subsection 146(8) and paragraph 56(1)(h) should be treated as a payment received by the annuitant for the purposes of subsection 146(8.2).”
Comments made with respect to subsection 146(8.2) constitute an administrative concession and are applicable only with respect to that subsection.
Official Response
Q.10 Changing an RESP subscriber
Grandfather A, who resides in the U.S., subscribed to a registered education saving plan (‘RESP”) for his Canadian-resident granddaughter, but now wishes for the subscriber to be changed to his son (the girl’s father). The CRA website indicates that it is possible to transfer amounts in a RESP to another RESP with a different subscriber and the same beneficiary. How is this possible given the prohibition under the s. 146.1(1) definition of “subscriber” against changing the subscriber?
CRA Preliminary Response
Such a transfer will be possible subject to the terms of the arrangement with the promoter. The provisions applicable to RESPs allow the transfer of amounts from one RESP to another. In fact, subsection 146.1(6.1) provides special rules for transfers of property from one RESP to another.
Paragraph 146.1(6.1)(b) provides that, for the purposes of the application of paragraphs 146.1(2)(d.1), 146.1(2)(h) and 146.1(2)(i) the receiving RESP shall be deemed to have been entered into on the earlier of the day it was entered into, and the day the transferring RESP was entered into. Thus, depending on the circumstances, that paragraph could cause the years of existence of the transferring RESP to be taken into account in determining when "accumulated income payments" may be made under the receiving RESP pursuant to 146.1(2)(d.1). If applicable, those years would also be taken into account in determining the maximum duration of the receiving RESP provided in paragraph 146.1(2)(i) and determining the period during which contributions may be made into the receiving RESP pursuant to paragraph 146.1(2)(h). Finally, paragraph 146.1(6.1)(c) provides that, notwithstanding subsections 146.1(7) and 146.1(7.1), no amount is to be included in computing the income of any person because of the transfer.
However, depending on the circumstances, a transfer between RESPs could result in the subscriber of the transferring RESP, the receiving RESP, or both, having to pay tax under subsection 204.91(1). In the situation described, as Grandfather A's granddaughter was the sole beneficiary of the transferring and receiving RESP, the transfer would not, in itself, result in an excess in respect of that beneficiary.
However, for purposes of Part X.4, after the transfer, Grandfather A would be considered to be a subscriber of the receiving RESP by virtue of paragraph 204.9(5)(e). That could result in tax being payable under subsection 204.91(1) after the transfer, if, for example, there was an excess before the transfer, or if an excess arose in the year of the transfer and Grandfather A had a "subscriber’s gross cumulative excess", within the meaning of subsection 204.91(1), in respect of that excess.
Official Response
Q.11 Confirmation of non-resident status before transfer from locked-in to non-locked-in RRSP or RRIF
Some pension plans provide that after two years of non-residence of the annuitant, the funds in a locked-in retirement account (LIRA), locked-in RRSP or life income funds (LIF) cease to be locked-in and can be withdrawn without limitation through a transfer to a non-locked-in retirement vehicle such as an RRSP or RRIF. However, the financial institution will require confirmation from CRA of the individual’s non-resident status. The NR73 form is complex and often addresses situations where there is factual uncertainty as to such status.
Could there be a simplified procedure for an individual, who has been non-resident for several years, to receive confirmation of non-resident status?
CRA Preliminary Response
Under the Canadian tax system, the tax that an individual is required to pay on the individual’s income is determined in relation to the individual’s Canadian residency status. Residence status is generally based on the facts and circumstances of the individual's situation. Certain deeming rules in the Income Tax Act may also affect that status.
In order to be able to provide an opinion on the residency status of an individual, the CRA must conduct a detailed review of all facts and circumstances specific to the individual's situation, which will generally have been brought to its attention by Form NR73. These include residency links with Canada and the duration, purpose, intent and continuity of Canadian and international travel. In addition, the residency status of an individual may vary over time depending on the particular facts and circumstances at the time of the determination.
It is possible that an individual may not have broken all residential ties with Canada, even though the individual is physically absent for a considerable period of time (that is, for a period of several months or years). In that context, the individual could be considered to be a Canadian resident for tax purposes, particularly if the individual did not intend to terminate the individual’s ties of residence with Canada.
In view of the above, the CRA does not envisage the creation of a simplified residency status determination procedure, even for an individual who has been physically absent from Canada for several years. Recall that an individual can electronically submit a completed NR73 Form through the CRA's My Account online service. An individual who does not use My Account must provide the required information on Form NR73 through the usual channels.
It should be noted that the CRA is constantly seeking to improve and simplify the services it offers. Its processes are therefore likely to change in the future, along with technology and its policies, which will make it easier for taxpayers. We invite you to visit the CRA website for any developments on that subject.
Official Response
11 October 2019 APFF Financial Strategies and Instruments Roundtable Q. 11, 2019-0812971C6 F
Q.12 Partial transfer of appreciated RRSP to surviving spouse
Mr. X had an RRSP with an FMV of $250,000 on his death on January 30, 2018. Given that Mr. X had little in the way of income, the executor wished to have $50,000 of the RRSP value included in Mr. X’s income and for the balance to be transferred on a rollover basis to his surviving spouse (Ms. Y). However, when the property in the RRSP was transferred to an estate account later in the year (on July 1, 2018), it had appreciated to $255,000. On December 15, 2018, the executor paid $205,000 to Ms. Y, who contributed that sum to her RRSP. That amount was designated by the executor and Ms. Y on Form T2019 as a refund of premiums, so that Mr. X had a $50,000 inclusion in his terminal return.
(a) Taking into account that an amount jointly designated under s. 146(8.1) is deemed to be received by an eligible beneficiary, is the income of $5,000 required to be included on the estate’s T3 return and shown on a T3 slip as distributed to the eligible beneficiary?
(b) Would the same conclusion obtain for a RRIF under s. 146.3(6.1)?
CRA Preliminary Response to Q.12(a)
By virtue of subsection 146(8.1), where a deceased annuitant's RRSP amount is paid to the deceased's legal representative, and that amount would have been a refund of premiums if it had been paid to the beneficiary of the estate, that amount is deemed, to the extent it is so designated jointly by the legal representative and the individual in Form T2019, to be received by the beneficiary at the time it was so paid as a benefit that is a refund of premiums.
A "refund of premiums" within the meaning of subsection 146(1) includes inter alia any amount paid to the annuitant's spouse or common-law partner out of or under an RRSP where the annuitant died before the maturity of the plan and the amount is paid as a consequence of the death of the annuitant under the plan, other than a tax-paid amount in respect of the plan. The increase in the FMV of RRSP property determined after the date of death to December 31 of the taxation year following the death of the annuitant is generally not a "tax-paid amount" as defined in subsection 146(1) and could be a refund of premiums.
In the situation described, the sum of $205,000 jointly designated by the legal representative and the spouse, Ms. Y, on Form T2019 would be deemed to have been received by Ms. Y (and not by the legal representative) in respect of a benefit that is a refund of premiums. That amount should be included in computing Ms. Y's income for the 2018 taxation year under subsection 146(8) and paragraph 56(1)(h), being the taxation year in which the benefit is deemed to have been received by Ms. Y.
Where at the time of filing the T3 Trust Income Tax and Information Return, the election under subsection 146(8.1) has been made, the increase in the FMV of the RRSP property determined after the date of death that is a refund of premiums would not have to be reported in the T3 return of the estate.
CRA Preliminary Response to Q.12(b)
The rules applicable to RRIFs are similar to those for RRSPs. Where a legal representative of the deceased last annuitant of a RRIF receives a designated benefit, subsection 146.3(6.1) provides that the designated benefit is deemed to be received by the individual out of or under the fund at the time it is received by the legal representative and not to be received out of or under the fund by any other person.
Paragraph (a) of the definition "designated benefit" in subsection 146.3(1) provides that amounts paid out of or under a RRIF after the death of the last annuitant to the legal representative of that annuitant may be jointly designated on a Form T1090 filed with the Minister by the legal representative and the individual where the amounts paid were a "refund of premiums" as defined in subsection 146(1) and they were paid to the individual out of or under the RRIF and if the RRIF had not matured before the death.
Consequently, the amount that is jointly designated as a designated benefit should be reported by the individual on the individual’s income tax return in the year the payment was received by the legal representative, pursuant to subsection 146.3(5) and (6.1) and paragraph 56(1)(t).
In a situation where, at the time of filing the T3 estate return, an election under the definition of "designated benefit" in subsection 146.3(1) has been made, the increase in the FMV of the RRIF property determined after the date of death that is a designated benefit would not have to be reported in the T3 estate return.