8 September 1997 External T.I. 9720965 - PART XIII, REFUND OF PREMIUMS

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:

Does paragraph 212(1)(l) apply to the income inclusion under subsection 146(8.8) before or after the deduction under subsection 146(8.9)?

Position:

Applies to the net amount after the deduction under 146(8.9).

Reasons:

The preamble to 146(8.9) clearly states that the amount is deducted in arriving at the income inclusion under 146(8.8).

	                              	972096
XXXXXXXXXX	                             M.P. Sarazin

Attention: XXXXXXXXXX

September 8, 1997

Dear Sirs:

Re: Death of a Non-Resident RRSP Annuitant

This is in reply to your letter dated August 5, 1997, wherein you asked us to provide our comments with respect to the following three questions.

Question #1

For the purposes of applying paragraph 212(1)(l) of the Income Tax Act (the "Act"), paragraph 214(3)(c) of the Act deems an amount included in income under subsection 146(8.8) of the Act to have been paid to the taxpayer as a payment under a registered retirement savings plan ("RRSP"). Since paragraph 214(3)(c) of the Act does not refer to subsection 146(8.9) of the Act, would paragraph 212(1)(l) apply to the amount determined before or after the application of subsection 146(8.9) of the Act?

Comments

The preamble of subsection 146(8.9) of the Act states that "there may be deducted from the amount deemed by subsection 146(8.8) to have been received by an annuitant...". In our view, it is the net amount after the deduction allowed under subsection 146(8.9) that will be included in an annuitant's income under subsection 146(8.8) of the Act. Consequently, paragraph 212(1)(l) of the Act will only apply to the net amount included in the annuitant's income under subsection 146(8.8) of the Act.

Question #2

When does the amount included in income under subsection 146(8.8) of the Act get subjected to paragraph 212(1)(l) at the date of death or when the amount is paid out of the RRSP?

Comments

The provisions of subsection 146(8.8) of the Act clearly provide that the annuitant is deemed to have received, immediately before his or her death, an amount as a benefit out of or under the RRSP. Since the provisions of paragraph 214(3)(c) of the Act deems the amount deemed to have been received pursuant to subsection 146(8.8) of the Act to have been paid to the non-resident for the purposes of Part XIII of the Act, paragraph 212(1)(l) will apply as of the date that is immediately before the annuitant's death.

Question #3

You are of the view that the penultimate sentence of paragraph 33 of Interpretation Bulletin IT-500R is not correct. Would we agree with your view?

Comments

We note that IT-500R does not reflect the proposed amendments (the "Amendments") tabled in the June 1996 Notice of Ways and Means Motion. However, we note that the Amendments are mentioned in the Note appended to paragraph 22 of IT-500R. We agree that, as a result of the amendments, the penultimate sentence is not currently applicable. In our view, the income earned in the RRSP trust after the end of the year following the year of the annuitant's death would be taxed as follows:

(a)if it is not distributed to the beneficiary in that year, it would be taxed under Part I in the trust and, as such, may be distributed after that time to the beneficiary without being subject to tax under Part XIII; and

(b)if it is distributed to the beneficiary in that year, it would be subject to tax under Part XIII pursuant to paragraph 212(1)(l) of the Act.

We trust the above comments will be of assistance to you.

Yours truly,

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