23 December 1999 External T.I. 9931685 - RRIF, DEATH, WITHHOLDING TAXES

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: Why are there no withholding taxes on amounts held in a RRIF included in the deceased annuitant's income under subsection 146.3(6) of the Act?

Position: There is no requirement under the Act.

Reasons: There is a deemed receipt under subsection 146.3(6) of the Act immediately before the annuitant's death so there is no payment from which withholdings could be made.

XXXXXXXXXX 993168
M. P. Sarazin
December 23, 1999

Dear Madam:

Re: Death of a Registered Retirement Income Fund Annuitant

This is in response to your letter dated May 28, 1999 to the Prince Rupert Tax Services Office, which was forwarded to us, wherein you requested clarification regarding the taxation of amounts held in a registered retirement income fund ("RRIF") at the time the annuitant under the RRIF dies. We apologize for the delay in replying.

Comments

As you may be aware, on November 1, 1999, Revenue Canada became the Canada Customs and Revenue ("CCRA"). CCRA's general views regarding the taxation of amounts held in a deceased annuitant's RRIF can be found in the guide titled "RRSPs and Other Registered Plans (T4040)". You can get a copy of the guide from your local tax office or you can access the guide on the internet at http://www.ccra-adrc.gc.ca/formspubs/menu-e.html . The enclosed Chart 3 which appears on page 20 of the guide deals specifically with amounts from a deceased annuitant's RRIF. You will note that where the annuitant dies and the surviving spouse is not designated as a new annuitant or beneficiary of the RRIF, the fair market value of the property held in the RRIF at the time the annuitant died is reported in box 18 of the T4RIF issued to the deceased annuitant and the amount is included on line 130 of his or her final return.

Withholding Requirements

Where the last annuitant under a RRIF has died, he or she is deemed by subsection 146.3(6) of the Income Tax Act (the "Act") to have received immediately before his or her death, a benefit equal to the fair market value of the property held in the RRIF at that time. Since the amount is deemed to have been received and there is no payment actually made by the carrier out of the RRIF to the annuitant at that time, there is no amount that can be subjected to withholding taxes under the Act. In fact the only RRIF payments that are subject to withholding are described in paragraphs 100(1)(j.1) and 103(6)(d.1) of the Income Tax Regulations. Under these provisions, only RRIF payments made by the carrier during the lifetime of the annuitant in excess of the minimum amount are subject to withholding taxes. Consequently, there are no legislative provisions requiring withholdings from the amounts reported by the carrier in box 18 of the T4RIF issued to the deceased annuitant under the RRIF.

Where an amount held in the deceased annuitant's RRIF is subsequently paid from the RRIF, the portion of the amount that was included in computing the income of the deceased annuitant or any other person is excluded, by virtue of subsections 146.3(6) and (6.2) of the Act, from the amount the recipient is required to include in income pursuant to 146.3(5) of the Act. Consequently, the amount is not taxable to the recipient so there is no requirement to withhold tax from such payments.

The provisions of subsection 160.2(2) of the Act provide that the recipient can be liable for the taxes of the deceased annuitant relating to the deemed RRIF benefit which is included in the deceased annuitant's income under subsection 146.3(6) of the Act. We note that the recipient can only be liable for the deceased annuitant's taxes that relate to the amount received by the recipient and not for the taxes that relate to amounts received by other beneficiaries out of the RRIF. This joint liability provision is required because the deceased annuitant is taxed on amounts that are not received and, as such, the deceased annuitant's estate may not have the funds to pay the taxes owing on such deemed receipts, whereas the recipients of the property from the RRIF are not taxed on such amounts. Since the taxes relate to the tax-free property received out of the deceased annuitant's RRIF, the Act makes the recipient of the tax-free property jointly liable for the deceased annuitant's taxes that relate to such tax-free property.

We note that, where a RRIF annuitant names his or her estate as the beneficiary under the RRIF contract, the estate would have the funds required to pay the deceased annuitant's income taxes on the RRIF property and the after-tax amounts paid by the estate to its beneficiaries would not be subjected to subsection 160.2(2) of the Act. However, the RRIF property received by the estate would become available to pay any other estate debts thereby potentially reducing the RRIF amount available for distribution to the estate's beneficiaries.

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

Yours truly,

Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate

Enclosure