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: Will the hypothetical scenario presented involving a deceased RPP member's pension benefit, the RPP member's financially dependent infirm child and the child's RDSP fall within the parameters of the RDSP rollover provisions in section 60.02 of the Act?
Position: No, based on the scenario described in the letter.
Reasons: Where an RPP lump sum death benefit is paid from the RPP to the deceased RPP member's financially dependent infirm child, the RPP lump sum death benefit will be eligible for a section 60.02 rollover, provided certain conditions therein are satisfied. A section 60.02 rollover is not available where the RPP death benefit is paid to the deceased's estate and subsequently paid from the estate to the deceased's financially dependent infirm child.
Author: Allen, Gary
Section: 60.02, 60(m)
September 29, 2016
Dear Mr. XXXXXXXXXX:
Re: Section 60.02 – Rollover to RDSP on death
This letter is in reply to your January 4, 2016 email concerning rollovers to registered disability savings plans (RDSP) in accordance with section 60.02 and paragraph 60(m) of the Income Tax Act (the “Act”). You describe the following hypothetical scenario and question whether it would fall within the parameters of section 60.02 and paragraph 60(m):
* a member of a registered pension plan (RPP) names their estate as beneficiary of the member’s pension
* the member dies and a lump sum pension benefit is paid from the RPP to the deceased’s estate
* a financially dependent infirm child of the deceased is a beneficiary of the estate
* the child was eligible for the disability tax credit in the year the member died and in the preceding year
* the deceased’s estate pays the lump sum pension benefit to the child and the child contributes the pension benefit to the child’s RDSP in the year received
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular (IC)70-6R6, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 60(m) allows a taxpayer to claim a deduction in respect of amounts paid to an RDSP in accordance with section 60.02. In general, subsection 60.02(2) allows a financially dependent infirm child of a deceased member of an RPP to claim a deduction in a taxation year for specified RDSP payments, as defined in subsection 60.02(1), made in the year or within 60 days after the end of the year. The deduction claimed cannot exceed the amount of eligible proceeds that are included in the child’s income for the year. Paragraph (c) of the definition of “eligible proceeds” in subsection 60.02(1) includes an amount received by a financially dependent infirm child of a deceased member of an RPP that is paid out of or under the RPP as a consequence of the death of the RPP member.
In the hypothetical scenario described above, the amount paid to the financially dependent infirm child is paid from the estate of the deceased RPP member and not out of or under an RPP under which the deceased was a member. Accordingly, a rollover in accordance with section 60.02 and a deduction under paragraph 60(m) would not be permitted.
In regards to your questions concerning whether this tax result is intended or whether the Act may be amended to permit a rollover in this hypothetical scenario, you may wish to contact the Department of Finance who are responsible for federal tax policy.
We trust that our comments will be of assistance to you.
Lita Krantz, CPA, CA
Deferred Income Plans Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.
© Her Majesty the Queen in Right of Canada, 2016
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2016
For additional commentary on Technical Interpretations, court cases, government releases, and conference materials in a single practical document specifically geared toward owner-managed businesses, see Video Tax News Monthly Tax Update newsletter.
This effective summary and flagging tool is the most efficient way to ensure that you, your firm, and clients are fully supported and armed for whatever challenges are thrown your way.
Packages start at $399/year.