2016-0669361E5 T4RIFs and theoretical value for min amount

Principal Issues: Did the carrier of a registered retirement income fund (“RRIF”) correctly issue T4RIF slips to the annuitant of the RRIF based on the facts provided?

Position: yes

Reasons: The definition of “retirement income fund” under subsection 146.3(1) requires the RRIF carrier to withdraw the minimum amount annually beginning the year after it is established.

Author: Doiron, Wayne
Section: 146.3(1) "retirement income fund", 146.3(1) "minimum amount", 56(1)(t), 146.3(5)

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                                                                                                                       W. Doiron
February 21, 2017

Dear XXXXXXXXXX:

Re: The determination of the minimum amount for a RRIF

This is in response to your letters of September 19, 2016, which was forwarded to this Directorate, XXXXXXXXXX, in which you inquire about whether a carrier of a registered retirement income fund (“RRIF”) correctly issued T4RIF slips to you.

This technical interpretation provides general comments about the provisions of the Income Tax 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

All statutory references in this memorandum are references to the provisions of the Income Tax Act (the “Act”).

Facts

The facts as we understand them are as follows:

* For the XXXXXXXXXX taxation years, the only assets held in your RRIF were shares of a specific corporation (the “Shares”);

* The RRIF carrier determined the fair market value (“FMV”) of the Shares in order to calculate the required annual minimum withdrawal amounts for the XXXXXXXXXX taxation years;

* The carrier of the RRIF paid the minimum amount to you by an in-kind distribution of the Shares in the XXXXXXXXXX taxation years;

* T4RIF slips were issued by the RRIF carrier to you for XXXXXXXXXX taxation years for the amounts distributed from the RRIF;

* The RRIF was closed in XXXXXXXXXX.

Our comments

The definition of “retirement income fund” under subsection 146.3(1) requires the RRIF carrier to pay to the annuitant the minimum amount annually beginning the year after it is established.  This “minimum amount” is calculated as the total FMV of all properties held in connection with the RRIF at the beginning of the year multiplied by the relevant prescribed factor.  The RRIF minimum amount can be distributed from the fund in cash or in-kind.  Where the minimum amount is paid to the annuitant by an in-kind distribution of property, this distribution occurs at the FMV of the property and the annuitant of the RRIF is required to include this amount in their income in the year.

As noted in the following paragraphs of the Income Tax Folio, S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs and TFSAs published by the CRA and available at http://www.cra-arc.gc.ca/tx/tchncl/ncmtx/fls/s3/f10/s3-f10-c1-eng.html

       1.96 The Act requires that all contributions, acquisitions and dispositions of property, distributions, and any other transactions involving a registered plan occur at fair market value. Otherwise, adverse tax consequences will arise. While the term fair market value is not defined in the Act, it generally is considered to mean the highest price expressed in terms of money that can be obtained in an open and unrestricted market between informed and prudent parties, who are dealing at arm's length and under no compulsion to buy or sell. The determination of fair market value is a question of fact.

       1.97 It is the responsibility of the registered plan trustee to determine the fair market value of property involved in a transaction. In the case of RESPs, responsibility may be shared between the trustee and the promoter. In some cases, the trustee may require the annuitant, holder or subscriber of the registered plan to provide evidence to determine the property’s fair market value. In these cases, the trustee must exercise due diligence in satisfying itself that the documentation provided is sufficient. The CRA may ask the registered plan trustee to demonstrate how the fair market value of a particular property was determined.

In our view, the carrier of the RRIF was required to pay the minimum amount to you as the annuitant and did so by the in-kind distribution in both the XXXXXXXXXX taxation years.  The determination of the FMV of the Shares is a question of fact.

As you have requested a change in the tax laws relating to the minimum amount out of RRIF, we have forwarded your letter to the Department of Finance.

We trust our comments will be of assistance to you.

Yours truly,

Mary Pat Baldwin, CPA, CA
Manager
Deferred Income Plans Section I
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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