3 October 2003 External T.I. 2003-0032295 - FINANCIALLY DEPENDENT CHILD

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 ISSUE:

What is the meaning of "financially dependent" for the purposes of the definition of refund of premiums in subsection 146(1) of the Act?

Position:

Question of facts. It is assumed that, unless the contrary is established, a child or grandchild was not financially dependent on the annuitant at the time of the annuitant's death if the income of that child for the taxation year preceding the year of death exceeded the basic personal credit in subsection 118(1) of the Act

REASON: Wording of the Act

XXXXXXXXXX 								2003-003229
									Michel Lambert CA, M.Fisc
October 3, 2003

Dear XXXXXXXXXX:

Re: Financially dependent child or grandchild

We are writing in reply to your letter of July 17, 2003, wherein you request our views regarding the meaning of "financially dependent" child or grandchild ("child") in regards to the conditions for a child to be "financially dependent" for the purpose of a transfer of a designated benefit out of a Registered Retirement Income Fund ("RRIF") of a deceased annuitant.

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").

A "designated benefit" is defined in subsection 146.3(1) of the Income Tax Act ("Act") to mean the total of amounts paid out of or under the RRIF after the last annuitant's death to an individual that would be a "refund of premiums" had the fund been an unmatured registered retirement savings plan. A "refund of premiums" is defined in subsection 146(1) of the Act to mean, among others, a payment to a child of the last annuitant who was financially dependent on the annuitant for support at the time of the death.

For this purpose, it is assumed that, unless the contrary is established, a child was not financially dependent on the annuitant at the time of the annuitant's death if the income of that child for the taxation year preceding the year of death exceeded the basic personal amount in subsection 118(1) of the Act for that preceding year ($7,634 for a death in 2003). To establish the contrary, the child or the child's legal representative may write to the tax services office outlining the reasons why the child should be considered financially dependent on the annuitant at the time of death. The factors that would be considered when establishing the existence of a child's financial dependence include:

1. the income of the child from all sources;

2. the cost of living (including the cost of the child's medical or special care requirements being paid by the annuitant at time of death) and the ability of the child to provide for self-support;

3. the support provided to the child from sources other than income (including the annuitant).

Where the annuitant can substantiate that he or she is required to financially support the child because the cost of the child's special needs exceed the child's income, an argument may be made that the child is financially dependent on the annuitant. This Directorate can only make this determination when all of the facts are presented in the context of an application for an advance income tax ruling.

However, the 2003 budget proposes to increase the level of income used to determine the financial dependence of an infirm child from $7,634 to $13,814 (indexed after 2003). If it is adopted by the Parliament, the measure will apply to individual's parent or grandparent who has died after 2002.

We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R5.

Yours truly,

Louise J. Roy CGA
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch