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.
Principal Issues: Reporting of pension income by designated beneficiary.
Position: Designated beneficiary is required to include in income.
Reasons: Paragraph 56(1)(a) of the ITA.
XXXXXXXXXX 2007-025449
January 4, 2008
Dear Madam:
Re: Changing the Allocation of Pension Income
This is in reply to your letter of August 21, 2007, which was forwarded to this Directorate on October 4, 2007. In your letter you asked for a ruling with regard to a lump sum payment you received as the designated beneficiary of your mother's pension plan. The T4A was issued in your name and included in your income for tax purposes. It is your opinion that the amount should be included in the income of the person who received the deduction for the pension plan contributions. You also advise that you were only listed as the designated beneficiary to ensure that you received the lump sum payment on a timely basis and that it not be tied up in probate.
As explained in Information Circular IC 70-6R5, transactions such as the one you described are the responsibility local Tax Services Office. We offer the following general comments that may be of assistance to you.
Paragraph 56(1)(a) of the Income Tax Act generally provides that a lump-sum payment out of a pension plan is included in the income of the recipient. The recipient may be the estate or a beneficiary. Where a beneficiary declaration has been made, that beneficiary, and not the estate, is prima facia, the recipient and owner of the lump sum payment and as such the amount is included in that beneficiary's income.
As outlined in paragraph 15 of Interpretation Bulletin IT-212R2, the only exception to the above position is:
...There may be exceptional cases where a pension fund or plan provides for voluntary withdrawal of contributions by an individual contributor (possibly with interest and/or employer's contributions) at a time or times other than on retirement or on leaving the employment. Where this is so, the portion of the lump-sum payment which would have been taxable had it been received by
the decedent normally is still regarded as income of the estate or beneficiary; but if the executor desires, for any reason, to report that amount as income of the employee for the year of death pursuant to subsection 70(2), no objection will be made to that manner of reporting nor to any consequential election properly made under subsection 70(2).
The circular and bulletin referred to in this letter are available on the Canada Revenue website at www.cra-arc.gc.ca. We are also returning the documents submitted with your request.
As discussed in our phone conversation of November 23, 2007, the role of the Canada Revenue Agency is to administer and enforce the Income Tax Act as passed by Parliament, while tax policy and amendments to the Act are the responsibility of the Department of Finance. Any request for legislative amendment should be sent to Department of Finance, Tax Legislation Division, L'Esplanade Laurier, 140 O'Connor St., Ottawa, ON, K1A 0G5.
Yours truly,
T. Murphy
Section Chief
Trusts Section
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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