2024 Ruling 2022-0941881R3 - RRSP transfer to non-resident surviving spouse

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: Can a transfer of property in a non-resident deceased taxpayer's RRSP to the RRSP of a non-resident surviving spouse under the terms of a XXXXXXXXXX revocable living trust qualify for an exemption from Part XIII tax?

Position: Yes.

Reasons: As provided in paragraph 214(3)c), if Part I applied, the transferred amount would be required to be included in computing the surviving spouse’s income because of subsection 146(8.1). Indeed, the surviving spouse would be an indirect beneficiary of the deceased annuitant’s estate for purposes of subsection 146(8.1). The transfer would be deemed a refund of premiums because it is made indirectly under the deceased’s annuitant’s will, as a consequence of his death, and under the express terms of an inter vivos trust. The non-resident spouse would therefore be considered to receive a benefit that is a refund of premiums out of or under an RRSP, and, were the non-resident spouse a resident of Canada throughout the transfer year, a deduction under paragraph 60(l) would be available, such that the conditions in subparagraphs 212(1)(l)(i) and (ii) will be met.

XXXXXXXXXX									2022-094188

XXXXXXXXXX, 2024

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX requesting an advance income tax ruling (“Ruling”) on behalf of the above-named Taxpayer. We also acknowledge the additional information provided during our telephone discussions and by email.

To the best of your knowledge and that of the taxpayers involved, none of the proposed transactions or issues involved in this Ruling request are the same as or substantially similar to transactions or issues that are:

i. in a previously filed tax return of the Taxpayer or a related person and:

A. being considered by the CRA in connection with such return;

B. under objection by the Taxpayer or a related person; or

C. the subject of a current or completed court process involving the Taxpayer or a related person; or

ii. the subject of a Ruling request previously considered by this Directorate.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”) and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated. Any reference in this letter to any action to be taken by or any agreement or transaction to be entered into by any trust participating in the Proposed Transactions shall be understood to be a reference to the trustee of that trust.

Definitions

In this letter, unless otherwise specified, the following abbreviations, terms and expressions have the meanings specified:

“CRA” refers to the Canada Revenue Agency;

“Deceased” means XXXXXXXXXX;

“Deceased’s RRSPs” means the two RRSPs described in paragraph 2;

“Declaration of Trust” means the XXXXXXXXXX Declaration of Trust dated XXXXXXXXXX;

“Estate” means the estate of the Deceased;

XXXXXXXXXX;

“Issuers” means XXXXXXXXXX and XXXXXXXXXX in respect of the Deceased’s RRSPs;

“Proposed Transactions” means the transactions described in paragraphs 18 to 21;

“RRSP” means a registered retirement savings plan as that term is defined in subsection 248(1) of the Act;

“tax-paid amount” has the meaning assigned by subsection 146(1) of the Act;

“Taxpayer’s RRSP” means an RRSP of which the Taxpayer is the annuitant and the issuer is XXXXXXXXXX;

“Trust” means the XXXXXXXXXX, as more fully described in paragraphs 4 and 5;

XXXXXXXXXX; and

“Will” means the Last Will and Testament of the Deceased executed in XXXXXXXXXX.

Facts

A complete description of all of the relevant facts is as follows:

1. The Deceased and the Taxpayer were married in XXXXXXXXXX and resided in the Province of XXXXXXXXXX.

2. While resident in Canada, the Deceased opened the Deceased’s RRSPs. XXXXXXXXXX is the issuer and trustee of one of the Deceased’s RRSPs and XXXXXXXXXX is the issuer and trustee of the other. Both of the Deceased’s RRSPs are governed by the law of the Province of XXXXXXXXXX.

3. The Deceased and the Taxpayer became residents of the XXXXXXXXXX and non-residents of Canada in XXXXXXXXXX.

4. On XXXXXXXXXX, the Deceased and the Taxpayer established the Trust as a XXXXXXXXXX revocable living trust.

5. Under the Declaration of Trust:

(a) the Deceased and the Taxpayer are the Trust’s sole settlors, trustees and beneficiaries;

(b) the trustees declare that they have received certain property from themselves as settlors, to be held by the Trust and to retain the character of community property for purposes of XXXXXXXXXX family law;

(c) the Trust’s property is comprised of all the property described in Schedule “A” to the Declaration of Trust (footnote 1) , as well as other property that may be subject to the Trust and shall be held, administered, and distributed as provided in the Declaration of Trust;

(d) upon the death of one of the spouses, the surviving spouse will remain as the sole settlor, trustee and beneficiary; and

(e) upon the death of one of the spouses, the surviving spouse may instruct the trustee (now the surviving spouse) to distribute the trust capital in such amounts as he/she determines, including all trust property in a lump sum, which gives the surviving spouse exclusive control over the trust property.

6. The Deceased executed his Will on the same date that the Trust was established. Under the Will:

(a) the Estate is bequeathed to the trustee of the Trust to become part of the Trust corpus and to be held, administered, and distributed as directed under the Trust agreement; and

(b) the Taxpayer is appointed as executor and alone retains all rights in the estate. Pursuant to her rights under the Will and the Declaration of Trust, the Taxpayer is the sole beneficiary of the Estate during her lifetime and no other beneficiary has or will have any rights in the Estate until after the death of the Taxpayer.

7. The Deceased died in the XXXXXXXXXX. Immediately before his death:

(a) the Deceased was the sole annuitant of the Deceased’s RRSPs, which were unmatured RRSPs;

(b) the Taxpayer and the Deceased were spouses; and

(c) the Taxpayer and the Deceased were both resident in the XXXXXXXXXX.

8. The Deceased’s RRSPs are part of the Estate’s assets as a result of the Deceased’s death.

9. The Taxpayer is now the executor of the Estate. In the course of administering the Estate, she has consulted a XXXXXXXXXX attorney who has attested that the Taxpayer is designated as Executor under the Deceased’s Will and would be entitled to be appointed as executor under XXXXXXXXXX. The XXXXXXXXXX attorney has also attested that the Deceased’s Will is valid and legally enforceable under XXXXXXXXXX, and that the Deceased’s RRSPs were considered community property under XXXXXXXXXX because the Deceased contributed to them while married to the Taxpayer.

10. In addition, the Taxpayer has also required advice from both the XXXXXXXXXX attorney as well as from a lawyer licensed to practise law in the Province of XXXXXXXXXX, who both concluded that the applicable law to determine the validity of the Will’s provisions, as they apply to the transfer of the Deceased RRSPs, is XXXXXXXXXX.

11. As the sole beneficiary of the Trust during her lifetime, the Taxpayer is the sole beneficiary of the Estate, although indirectly through the Trust. Under XXXXXXXXXX trust law she is the beneficial owner of all of the Trust’s income, gains and property. Under the Declaration of Trust, the Taxpayer can also direct that all Estate assets, including the Deceased’s RRSPs, be transferred to her outright.

12. In addition to her rights as beneficiary of the Estate indirectly through the Trust, the Taxpayer also has entitlements in the Estate based on her rights under the XXXXXXXXXX community property and quasi-community property regime.

13. In summary, the Taxpayer is entitled to receive the whole proceeds to be paid out of the Deceased’s RRSPs, pursuant to her rights as sole beneficiary of the Estate, either directly or indirectly under the Trust.

14. The Taxpayer is the annuitant of the Taxpayer’s RRSP.

15. The Taxpayer currently resides in the XXXXXXXXXX and is a non-resident of Canada for tax purposes.

16. No amount has been paid out of the Deceased’s RRSPs since the Deceased’s death.

17. No Part XIII has been deducted nor withheld by the Issuers from the Deceased’s RRSPs since the Deceased’s death.

Proposed Transactions

18. Upon the receipt of a favourable ruling from the CRA, the Taxpayer, in her capacity as executor of the Estate and sole trustee of the Trust, as well as in her own capacity, will instruct the Issuers in order for all the property in each of the Deceased’s RRSPs (other than a tax-paid amount in respect of each of the Deceased’s RRSPs) to be transferred directly to the Taxpayer’s RRSP.

19. The Taxpayer, in both her capacity as executor of the Estate and her own capacity, will jointly elect, pursuant to subsection 146(8.1) of the Act, that the payment out of the Deceased’s RRSPs of all of the property (other than a tax-paid amount in respect of each of the Deceased’s RRSPs) will be deemed to be received by the Taxpayer at the time it was paid as a benefit that is a refund of premiums. The joint election will be made by the Taxpayer by filing a completed Form T2019, Death of an RRSP Annuitant – Refund of Premiums.

20. The Taxpayer, in both her capacity as executor of the Estate and her own capacity, will complete Form NRTA1, Authorization for Non-Resident Tax Exemption, with the Issuers and the issuer of the Taxpayer’s RRSP, in respect of the direct transfer of all of the property in each of the Deceased’s RRSPs (other than a tax-paid amount in respect of each of the Deceased’s RRSPs) to the Taxpayer’s RRSP.

21. Pursuant to the instructions to be provided by the Taxpayer as described in paragraph 18 above, the Issuers will effect the transfer of all of the property in each of the Deceased’s RRSPs (other than a tax-paid amount in respect of the each Deceased’s RRSPs) directly to the Taxpayer’s RRSP as set out in Form NRTA1, Authorization for Non-Resident Tax Exemption.

Purpose of the Proposed Transactions

The purpose of the Proposed Transactions is to allow the Taxpayer a tax-deferred spousal rollover of property from the Deceased’s RRSPs to the Taxpayer’s RRSP without the application of Part XIII tax at the time of transfer.

Ruling given

Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and purposes of the Proposed Transactions, and provided further that the Proposed Transactions are carried out as described above, our ruling is as follows:

A. The amounts transferred from the Deceased’s RRSPs to the Taxpayer’s RRSP described in paragraph 18 will be exempt from Part XIII tax under subparagraph 212(1)(l)(i) and (ii) as amounts transferred by the Issuers to the Taxpayer’s RRSP on behalf of the Taxpayer pursuant to an authorization in prescribed form that would have been deductible in computing the Taxpayer’s income under paragraph 60(1), had the Taxpayer been resident in Canada throughout the year.

The above rulings is given subject to the limitations and qualifications set forth in Information Circular 70-6R12 issued on April 1, 2022, and is binding on the CRA provided that the Proposed Transactions are completed within six months of the date of this letter.

The above rulings is based on the Act in its present form and does not take into account any proposed amendments to the Act, which if enacted, could have an effect on the ruling provided herein.

Other comments

The documentation submitted with your request that is not described above does not form part of the facts and Proposed Transactions and any references to the documentation are provided solely for the convenience of the reader.

Nothing in this letter should be construed as implying that the CRA has confirmed, reviewed or made any determination in respect of any tax consequences relating to the facts and Proposed Transactions herein, other than those specifically described in the ruling given above. In particular, the CRA has not considered, confirmed or made any determination in respect of:

a. the validity, residency or any other attributes of the Trust at any particular time under the law of any jurisdiction;

b. the status of the Taxpayer as a factual or deemed non-resident of Canada;

c. the validity of the Will and of the appointment of the Taxpayer as executor of the Estate;

d. the applicable law to determine the validity of the Will’s provisions, as they apply to the transfer of the Deceased’s RRSPs;

e. the Issuers’ withholding and reporting obligations in relation to any other transfer than the transfer described in paragraph 18 above; or

f. the tax treatment of the tax-paid amounts that will be paid out of the Deceased’s RRSPs.

An invoice for our fees in connection with this ruling request will be forwarded to you under separate cover.

Yours truly,

XXXXXXXXXX
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. Property described in Schedule “A” includes the Deceased’s RRSPs and other financial accounts. However, at the time the Trust was created, there was no transfer of legal title of the Deceased’s RRSPs accounts unto the Trust as the Deceased did not provide written instructions to the RRSPs’ issuers to transfer the RRSPs to the Trust. The Deceased remained the annuitant of the Deceased’s RRSPs during his lifetime and was still the annuitant of the Deceased’s RRSP on his death.