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 Issues:
Will a child that lives with one parent subsequent to a divorce be considered financially dependent on the other parent where the other parent pays monthly child support payments?
Position: Question of fact.
Reasons:
All of the facts pertaining to each particular case would have to be reviewed. However, we would generally consider the existence of financial dependence where a parent is making child support payments to the other parent that has custody of the child.
XXXXXXXXXX 2001-011442
M. P. Sarazin, CA
January 29, 2002
Dear XXXXXXXXXX:
Re: Refund of Premiums and Financially Dependent Child
This is in reply to your letter of November 6, 2001, which was forwarded to us by the Shawinigan-Sud Taxation Centre, requesting a ruling as to whether a child would be considered financially dependent for purposes of the Income Tax Act (the "Act") on a parent who pays child support to his or her former spouse that has custody of the child.
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 70-6R4, dated January 29, 2001. We note that Information Circulars and Interpretation Bulletins are available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html. Consequently, we can only provide the following general comments.
The Canada Custom and Revenue Agency's general views regarding the treatment of payments out of an RRSP on or after the death of its annuitant are found in Interpretation Bulletin IT-500R entitled Registered Retirement Savings Plans - Death of an Annuitant. We note that paragraphs 9 and 17 to 26 of IT-500R deal specifically with refunds of premiums and paragraphs 27 and 28 of IT-500R deal with the rollover provisions related thereto.
When the annuitant under a registered retirement savings plan ("RRSP") dies, subsection 146(8.8) of the Act deems the annuitant to have received, immediately before death, a benefit equal to the fair market value of the property held in the RRSP at that time (IT-500R paragraph 5). The amount included in the deceased annuitant's income as a result of his or her death may be reduced by the amount of a "refund of premiums" paid to the deceased annuitant's financially dependent child or grandchild.
An amount paid to a child or grandchild is not a "refund of premiums" if the child or grandchild is not financially dependent on the annuitant. It is assumed, unless the contrary is established, that the child or grandchild is not financially dependent if his or her income for the year preceding the taxation year in which the annuitant died exceeded the total of $500 plus the basic personal amount for that preceding year (IT-500R paragraph 18 - note the $500 was added subsequent to the issuance of IT-500R and it is not reflected in the comments provided therein).
The determination of whether a child is financially dependent would require a review of all of the facts. However, where the child has no income and the child lives with one parent subsequent to a divorce of his or her parents, we would generally consider the child to be financially dependent on the other parent where the other parent pays child support (whether pursuant to a Court Order or a Separation Agreement) to the parent that has custody of the child.
We trust these comments will be of assistance.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
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