2019-0806541E5 Financial dependency

Principal Issues: Whether a tax-deferred rollover of RRIF proceeds paid after the death of a parent to an RDSP of an infirm child is available where the child did not reside with the parent on a full-time basis?

Position: Yes.

Reasons: According to the facts it is reasonable to consider the child to be financially dependent on the parent by reason of mental infirmity.

Author: Schnitzer, Irina
Section: 60.02, 146(1.1), 146.3(6) – 146.3(6.2)

XXXXXXXXXX                                                                        2019-080654                                                                                                                  I. Schnitzer
June 26, 2020

Dear XXXXXXXXXX,

Re: Financial dependency condition for RDSP rollover

This is in reply to your correspondence dated April 30, 2019 concerning the rollover provision for registered disability savings plans (“RDSPs”) in section 60.02 of the Income Tax Act (“Act”). We apologize for the delay in our response.

You indicate that you are assisting an elderly family member in estate planning for her adult son and are investigating the RDSP program. In particular, you are looking into whether it would be possible to rollover the proceeds of her registered retirement income fund (“RRIF”) upon her death to her son’s RDSP. However, because the son does not live with his mother on a full-time basis, you are concerned that the financial dependency condition for the rollover might not be met. You have asked for our views on this issue and have provided the following additional information:

*    The son has a severe mental infirmity and is eligible for the disability tax credit.

*    Due to his infirmity, the son is unable to work and earn a living.

*    The son previously lived with his mother and recently deceased father, but now lives in a group home. Due to the nature of the son’s infirmity, it became difficult for the parents to provide the necessary level of care as they advanced in age.

*    The son’s only source of income is from a provincial disability support program. The son’s income each year does not exceed the total of the basic personal amount and the disability amount for the year.

*    The son’s income covers only his basic room and board at the group home. All financial needs above and beyond these basic needs are covered by the mother.

*    The mother’s financial support is provided on a regular basis and consists of more than merely enhancing or supplementing an already adequate lifestyle of the son.

*    The son receives no other financial support.

*    The son resides with his mother on weekends and holidays.

Our comments

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 70-6R9, Advance Income Tax Rulings and Technical Interpretations.

Section 60.02 of the Act permits a tax-deferred rollover of proceeds from a deceased annuitant’s RRIF to an RDSP of a child or grandchild of the deceased, provided that certain conditions are met. The RDSP rollover is also available for proceeds from a deceased annuitant’s registered retirement savings plan and certain lump sum payments from a deceased member’s registered pension plan, pooled registered pension plan or specified pension plan.

One of the eligibility conditions for the RDSP rollover is that the child or grandchild (referred to as “child” for the remainder of this letter) was financially dependent on the deceased for support, at the time of the death, by reason of a mental or physical infirmity. This is a question of fact. However, subsection 146(1.1) provides a rebuttable presumption that an infirm child is not financially dependent if the child’s income for the year before the death exceeded the basic personal amount plus the disability amount for that year. There is no corresponding presumption where the child’s income is below the threshold. That is, it still must be determined, based on the particular facts, whether the child was financially dependent on the deceased for support at the time of death.

The CRA generally considers a child to be financially dependent on the deceased for support at the time of death if the child ordinarily resided with and depended on the deceased, and the child’s income does not exceed the above threshold. It is important to note that a child who did not ordinarily reside with the deceased, or whose income exceeded the threshold, may still be considered to be financially dependent on the deceased if determined by the facts. Some of the factors that may be considered in making this financial dependency determination include the income of the child from all sources, the cost of living (including the cost of the child’s medical or special care requirements) and the ability of the child to provide for self-support, and any support received by the child from other sources.

In the situation described above and based on all of the facts provided, it would be reasonable to consider that the son is financially dependent on his mother for support by reason of mental infirmity. Note that to qualify for the RDSP rollover this condition would have to be met at the time of the mother’s death.

For information on the other eligibility conditions for the RDSP rollover, see Guide RC4460 Registered Disability Savings Plans.

We trust that these comments will be of assistance.

Yours truly,

Dave Wurtele
Section Manager
for Division Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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