15 December 2003 External T.I. 2003-0050485 - RRIF ROLLOVER TO TRUST

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Can a RRIF be rolled over to an irrevocable trust upon the death of the RRIF annuitant?

Position:

Only if the beneficiary is the mentally or physically infirm spouse, common law partner or child of the annuitant

Reasons: Clear from the legislation.

2003-005048
XXXXXXXXXX Renée Shields
(613) 948-5273
December 15, 2003

Dear XXXXXXXXXX:

Re: Rollover of Registered Retirement Income Fund ("RRIF") to a Trust

This is in response to your facsimile of November 20, 2003 inquiring whether a RRIF annuitant can designate a trust to be the beneficiary of his or her RRIF. In particular, you ask whether this can be done on a roll-over basis, without tax consequences.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.

The CCRA's general views regarding the treatment of RRIF amounts following the death of the annuitant are contained in document number RC4178 entitled "Death of a RRIF Annuitant" (the "Information Sheet") and also in document number T4079 "T4RSPand T4RIF Guide".

In general, a RRIF is an arrangement between a carrier and an individual (the "Annuitant") under which, in consideration of property, the carrier undertakes to pay the yearly minimum amount to the Annuitant. After the death of the Annuitant, where the appropriate election has been made, payments may continue to be made by the carrier to a second individual, called the "Successor Annuitant". The definitions of "RRIF" and "annuitant" in the Income Tax Act (the "Act") do not make it possible for any person other than the spouse or common-law partner of the first Annuitant to be the Successor Annuitant. This structure allows the RRIF to remain registered and allows earnings on the RRIF investments to continue to be tax sheltered after the death of the first Annuitant.

In the absence of an election to designate a Successor Annuitant, when a RRIF Annuitant dies, he or she is considered to have received, immediately before death, an amount equal to the fair market value of all the property held in the RRIF at the time of death. This amount and any other amounts received by the Annuitant in the year from the RRIF have to be reported on the deceased's tax return for the year of death.

However, as noted in Chart 2 on page 3 of the Information Sheet, subsection 146.3(6.2) of the Act allows the amount of a "designated benefit" paid out of a RRIF to a beneficiary to be taxed in the hands of the beneficiary at the option of the deceased's legal representative. Please refer to the shaded areas of Chart 1 on page 1 of the Information Sheet for a description of the amounts that may qualify as a designated benefit.

Where the beneficiary is the spouse or common law partner of the Annuitant or a child or grandchild dependent on the Annuitant by reason of mental or physical infirmity, such individual may claim a deduction under paragraph 60(l) of the Act for the amount of a designated benefit that is brought into their income. This deduction is only available if, in the year of receipt of the designated benefit, or within 60 days after the end of the year, it is transferred to an RRSP, a RRIF or an annuity under which the spouse, common law partner or child/grandchild is the annuitant.

We note that there is a pending amendment to the Act that will allow the foregoing deduction where the designated benefit is used to acquire an annuity with amounts payable to a trust, under which only the Annuitant's mentally or physically infirm spouse or common law partner, or the Annuitant's mentally or physically infirm and financially dependent child or grandchild, has a beneficial interest in the annuity payments. Whether an individual is mentally or physically infirm will be a question of fact.

We trust that these comments will be of assistance.

Yours truly,

Roberta Albert, C.A.

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch