ARCHIVED - Income of Deceased Persons - Rights or Things
DATE: July 26, 1995
SUBJECT: INCOME TAX ACT
Income of Deceased Persons - Rights or Things
REFERENCE: SPECIAL RELEASE
This Special Release revises Interpretation Bulletin IT-212R3 dated March 21, 1990.
1. Paragraph 2 of the bulletin is revised to clarify that the reference to "cash basis" in the bulletin is to the "cash method" referred to in section 28. The paragraph is also changed to take into consideration the amendment to subsection 70(3.1) enacted under S.C. 1994, c.21 (formerly Bill C-27) for the 1992 and subsequent taxation years. Paragraph 2 of the bulletin now reads as follows:
2. With certain exceptions, where a taxpayer at the time of death had rights or things which, when realized or disposed of, would have been included in computing income, subsection 70(2) requires the "value" (see 4 below) of such rights or things at the date of death to be included in computing income for the year of death. Subsection 70(2) includes in income amounts that have been earned but have not been included in income, such as dividends declared but unpaid, deferred cash purchase tickets (see subsection 76(4)), uncashed matured bond coupons and amounts in respect of which an amount has been deducted in computing income, such as a "cash basis" (i.e., the cash method permitted in section 28) inventory. Any capital property or any amount included in income under subsection 70(1) is excluded from the application of subsection 70(2). Also, pursuant to subsection 70(3.1), rights or things do not include an eligible capital property, land included in the inventory of a business, a Canadian or foreign resource property and an interest in a life insurance policy. An interest in a life insurance policy includes an annuity contract other than one in respect of which an amount was deductible by the deceased taxpayer under paragraph 60(l) or acquired in circumstances to which subsection 146(21) applies.
2. If Bill C-70 is enacted, the reference at the end of paragraph 11 of the bulletin to "paragraph 80(1)(h)" will be changed to "paragraph 80(2)(a)" for taxation years that end after February 21, 1994.
3. Paragraph 16 of the bulletin is revised to reflect subsections 146(8.8) and 146(8.9) both before and after the changes made to those subsections enacted under S.C. 1994, c.21 (formerly Bill C-27) which apply to deaths occurring after 1992:
16. A taxpayer is not considered to have a right or thing in respect of a registered retirement savings plan, whether matured or not, if the taxpayer was, until death, the annuitant thereunder. However, except in the case of a plan that had matured before June 30, 1978, where the annuitant dies after June 29, 1978, the fair market value of all the property of the plan at the time of death (less certain amounts - see paragraph 146(8.8)(b) and subsection 146(8.9)) must be included in the income of the deceased taxpayer by virtue of subsection 146(8.8) in the ordinary return required to be filed by section 150. See the current version of IT-500, Registered Retirement Savings Plans (maturing after June 29, 1978) Death of Annuitant after June 29, 1978 for further details. Similarly, a taxpayer is not considered to have a right or thing in respect of a registered retirement income fund.
4. In paragraph 17 of the bulletin, the references to "paragraph 70(5.2)(e)" and "paragraph 70(5.2)(f)" are changed to "paragraph 70(5.2)(c)" and "paragraph 70(5.2)(d)", respectively. These changes result from the enactment of S.C. 1994, c.21 (formerly Bill C-27) applicable to dispositions and acquisitions occurring after 1992.
5. Paragraphs 6 to 19 of the bulletin discuss rights or things relating to specific items. The following paragraphs relating to specific items are in addition to this discussion:
19.1 An employee's enforceable claim at the time of death against an employer for a declared bonus is a right or thing. Where, however, the employer has a contractual obligation to pay an annual bonus or on some other periodic basis, but the bonus had not been declared at the time of death, the amount is remuneration "payable periodically" as described in paragraph 70(1)(a).
NISA Fund No. 2
19.2 An amount in a taxpayer's NISA Fund No. 2 (i.e., the portion of the taxpayer's net income stabilization account described in paragraph 8(2)(b) of the Farm Income Protection Act) on hand at the time of death is not a right or thing. Unless subsection 70(6.1) applies, the deceased taxpayer will be considered to have been paid immediately before death, pursuant to subsection 70(5.4), all amounts held for or on behalf of the taxpayer in the taxpayer's NISA Fund No. 2. The amount deemed to have been paid will, pursuant to subsection 12(10.2), be used in determining the amount to be included in income in the deceased taxpayer's ordinary return. Subsection 70(5.4) will not apply where, as a consequence of death, a net income stabilization account is transferred to a spouse or spouse trust and the conditions of subsections 70(6.1) are met. In such a situation there will be a rollover of the deceased taxpayer's NISA Fund No. 2 to the spouse or spouse trust.
As a result of the above, subsections 12(10.2), 70(5.4) and 70(6.1) are added to the REFERENCE area of the bulletin.
6. Paragraph 20 of the bulletin is revised to delete portions of the text that no longer have any relevance. Paragraph 20 of the bulletin now reads as follows:
20. Pursuant to subsection 70(2) the taxpayer's legal representative may elect to file a separate return of the value of the deceased taxpayer's rights or things and pay tax thereon for the taxation year in which the taxpayer died as if the taxpayer were another person. To be valid the election must be made not later than the later of one year after the date of death and 90 days after the mailing of any notice of assessment or reassessment for the year of death. If a separate return is filed, it must include the total value of all the deceased taxpayer's rights or things other than those transferred to beneficiaries within the time provided by subsection 70(3) (see 25 below). The personal tax credits provided in paragraphs 118(1)(a) to (d) and subsection 118(2) that apply to the deceased taxpayer's ordinary income tax return for the year of death may also be claimed on the separate return filed pursuant to subsection 70(2). The personal tax credits are the spousal tax credit, the equivalent-to-spouse tax credit, the basic personal tax credit, the dependant tax credit and the age tax credit. See the current version of IT-513, Personal Tax Credits, for further information on these tax credits. The extent to which deductions under section 110 and tax credits under subsection 118(3) and sections 118.1 to 118.7 and 118.9 may be claimed on the separate return is discussed in the current version of IT-326, Returns of Deceased Persons as "Another Person".
If you have any comments regarding the matters discussed in this bulletin, please send them to:
Director, Technical Publications Division
Policy and Legislation Branch
875 Heron Road
Ottawa ON K1A 0L8
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