9 November 1999 Internal T.I. 9926947 - REFUND OF PRENIUMS TO GRANDCHILD

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 Department.

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

Principal Issues

We were asked to determine if the grandchildren of a deceased RRIF annuitant were financially dependent on the deceased at the time of death for the purpose of determining whether certain amounts were refunds of premiums.

Position:

This is a question of fact that must be determined by the TSO. We also noted that the facts provided were insufficient to properly decide the case. However, we did provide a preliminary opinion based on the limited facts presently available.

Reasons:

The Department has stated that it is more appropriate to decide these kinds of issues at the TSO where they are better able to determine the facts relevant to each situation. On the other hand, in the present situation, it would be difficult to accept that the grandchildren were financially dependent on the grandfather at the time of his death because the grandchildren's parents appear to provide the necessary support to the grandchildren at the time.

		November 9, 1999

	VANCOUVER TSO	HEADQUARTERS
	Client Services Division	W.C. Harding
(613) 957-8953
	Attention: D. Morrison
	                 Section 471-11
		992694

XXXXXXXXXX

This is in reply to your memorandum of October 1, 1999, in which you asked for an opinion on whether certain payments made out of RRIFs under which the late XXXXXXXXXX was the annuitant, could be treated as refunds of premiums as defined under subsection 146(1) of the Income Tax Act (the "Act").

Facts

The deceased, XXXXXXXXXX, was the annuitant of two RRIFs at the time of his death in XXXXXXXXXX was predeceased by his spouse. Accordingly, all amounts held in the RRIFs became payable to his estate on his death. However, designations were made by his legal representative on formT1090(e) Death of a RRIF Annuitant - Designated Benefit and the amounts payable to the estate were instead transferred as refunds of premiums to RRSPs on behalf of XXXXXXXXXX grandchildren.

The parties involved now understand that the transfers to RRSPs for the grandchildren were inappropriate because the grandchildren were not dependent on XXXXXXXXXX at the time of his death by reason of any physical or mental infirmity. Nevertheless, they believe that the grandchildren were financially dependent on their grandfather at the time of his death and that, as a result, the amounts in question could still be used to acquire an annuity for each grandchild in accordance with paragraph 60(l)(ii) of the Act. In consequence, they are now asking you to concur with their proposal to correct the error by allowing them to use the funds now held in the grandchildren's RRSPs to acquire annuities as described in paragraph 60(l)(ii) of the Act.

In support, XXXXXXXXXX daughters (and the mothers of the grandchildren involved) have provided letters in which they set out various reasons why they believe their children were financially dependent on XXXXXXXXXX. The factors cited will not be repeated here. However, in summary it appears that XXXXXXXXXX from time to time did provide cash for the grandchildren's betterment and also paid for items such as food, clothing, toys and other needs. Nevertheless, it appears that the grandchildren's parents continued to maintain full care and control of the grandchildren at all times.

Our Comments

An amount paid directly from a RRIF to a grandchild after the death of the last annuitant under the RRIF is a "designated benefit" pursuant to the definition assigned to that phrase under subsection 146.3(1) of the Act, to the extent the amount would be a "refund of premiums" had the RRIF been a registered retirement savings plan ("RRSP") which had not matured before the time of death. A "refund of premiums" is defined at subsection 146(1) of the Act to mean, inter alia, if the annuitant had no spouse at the time of death, an amount paid out of or under an RRSP after the death of the annuitant to a child or grandchild (hereinafter referred to as "grandchild") of the annuitant who was, at the time of the death, financially dependent on the annuitant for support.

The phrase "financially dependent on the annuitant for support" means that the grandchild must be financially dependent on the deceased annuitant for support at the time of the annuitant's death. It is a question of fact what constitutes financial support but we have previously stated in a similar situation that gifts provided by a grandparent would not generally constitute financial support where they merely enhance or supplement an already adequate life style of a grandchild. However, it would still be necessary to examine other factors before a final determination could be reached in your case. Factors which might be considered would be:

a) the income of the grandchild from all sources;

b) the cost of living and the ability of the grandchild to provide for self-support; and

c) the support provided to the grandchild by other persons.

It will generally be assumed unless the contrary is established that a grandchild who is supported by the deceased may not be considered financially dependent upon the deceased for support at the time of death if the grandchild's income in the year preceding the death of the deceased was greater than $500 plus the basic personal credit in subsection 118(1) of the Act (set at $6,456 in 1998). However, this assumption is only relevant where it has first been concluded that the grandchild was at the time of the death, financially dependent upon the deceased for support. Where the grandchild is living with another individual who is providing support for the grandchild at the time of death, the grandchild would not generally be considered to be financially dependent upon the deceased for support at that time. For example we would not normally accept that a grandchild was financially dependent on a grandparent where the grandchild lived with his or her parent(s) and the parent(s) could adequately provide for the grandchild's well being.

The final determination in your case cannot be determined on the basis of the information you have received to date. However, based on the limited information provided we are inclined to concur with your opinion that XXXXXXXXXX grandchildren were not financially dependent on him at the time of his death. However, we again caution that further details of the parents income may be necessary to support this conclusion.

XXXXXXXXXX

P. Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

cc Pierre Cloutier
Policy Section
Registered Plans Division

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