Questions and Answers - 2008 Specialty Products Practitioners' Forum
Answers provided by the Registered Plans Directorate
Q.1 What is considered acceptable proof for purposes of making an educational assistance payment (EAP)? More specifically, can we accept a letter of admission? Please clarify the concept of a qualifying program. We often receive proof that indicates that the student is registered as an "Undergraduate," i.e. not in a program or as an independent student. There is also a lot of proof where the program is replaced by "Faculty."
A.1 For a promoter to make a valid EAP, the beneficiary must be enrolled as a student in either a "qualifying educational program" or a "specified educational program" at a "post-secondary educational institution," all defined terms under subsection 146.1(1) of the Income Tax Act (the "Act").
As the enrolment process differs amongst post-secondary educational institutions, the promoter can accept the proof of enrolment that is provided to the beneficiary (student) from the post-secondary educational institution for the purposes of an EAP.
A "qualifying educational program" is a full-time program at a post-secondary school level that lasts at least 3 consecutive weeks and requires each student in the program to spend at least 10 hours per week on courses or work in the program.
A "specified educational program" is a part-time program at a post-secondary school level that lasts at least 3 consecutive weeks and requires each student in the program to spend at least 12 hours per month on courses in the program.
Note that a program of courses of a technical, or vocational nature that is designed to provide a person with skills, or to improve a person's skills, in an occupation qualifies for purposes of either program if the program is provided at an educational institution that is certified by the Minister of Human Resources and Skills Development (HRSDC) as an institution that provides such programs.
More information about these terms and making EAPs is available in paragraph 17 through 27 of Information Circular 93-3R , Registered Education Savings Plans available on the Canada Revenue Agency (CRA) Web site.
Q.2 In RESP Bulletin no. 1R1, you implement a maximum EAP of $20,000. Is this:
An annual amount, an amount for a payment claim or an amount per session?
Is it applicable only to full time students?
If so, what about claims for part time students?
A.2 Under paragraph 146.1(2)(g.1) of the Act, the total EAP amount may not exceed $5,000 for the first 13 weeks of enrolment. This is the amount for enrolment in a qualifying educational program, i.e. full time. The amount is reduced to $2,500 for each 13 week period ending at the time of payment for students enrolled in a specified educational program, i.e. part time. Our bulletin indicates that the policy is designed to reduce the administrative burden on promoters by allowing EAPs for qualifying educational programs of up to $20,000 to be paid annually without requiring the promoter to assess the reasonableness of each expense.
The $20,000 annual EAP applies to qualifying education programs (full-time) only. This is due to the fact that once the student has been enrolled in such a program for at least thirteen consecutive weeks in the previous 12 months, subclause 146.1(2)(g.1)(ii)(A)(II) will not apply (i.e. the $5,000 cap for the first 13 weeks of enrolment). In the case of a specified educational program (part-time), the $2,500 EAP cap will always apply to each 13 week period in which the student is enrolled in such a program as per clause 146.1(2)(g.1)(ii)(B).
Q.3 a) Is our interpretation correct regarding claims for payments in excess of $20,000, i.e. that we require lists of expenses to justify the amount claimed (current rule)?
A.3 a) The beneficiary should maintain receipts in order to justify an EAP in excess of $20,000. Under paragraph 146.1(2)(m) of the Act, the promoter must take all reasonable measures to ensure that the plan will continue to comply with the conditions set out in the ITA. Our bulletin only confirms that, for amounts less than $20,000, the promoter is not required to assess the reasonableness of each expense item; however, all payments, regardless of the amount, must satisfy the definition of an educational assistance payment.
Q.3 b) What should be considered reasonable expenses?
A.3 b) The Act defines an education assistance payment as any amount, other than a refund of payments, paid out of an education savings plan to or for an individual to assist the individual to further the individual's education at a post-secondary school level. All expenses that meet that condition are eligible. The determination whether or not the expense is "reasonable" is made by the promoter.
Q.4 When the first EAP is submitted within six months of the end of studies, what should the beneficiary provide as proof? Should documents bear the official seal of the educational institution?
A.4 The promoter must be certain that the individual was enrolled in either a qualified educational program or a specified educational program for the period covered by the EAP. The ITA does not have any rules regarding the type of document that the promoter may require or accept for the purpose of making an EAP at any time.
Q.5 Among other things Bill C-50 implemented changes to Registered Education Savings Plan (RESP) that generally increased existing limits by 10 years. However, the Bill did not change subsections 204.9(4) or 204.9(5) of the Act.
a) As a result it is not clear whether a change in the beneficiary of an RESP can be done as long as both parties are under age 31 or if the former age 21 limitation still applies nor is it clear if the limitation on the RESP plan life on such a change in beneficiary is 35 years or if it is still 25 years. What is the Canada Revenue Agency (CRA) interpretation?
b) Another result is that it is not clear if transferring an RESP from one plan to another where the new beneficiary is a sibling of the beneficiary of the plan from which the transfer arises is subject to the age 21 limit or if the age 31 limit applies. What is the CRA interpretation?
A.5 As noted, Bill C-50 implemented changes to RESP that generally increased existing limits by 10 years. Subparagraphs 146.1(2)(h)(i) & (ii) of the Act have been revised to permit contributions to a specified plan no later than the 35th year following the year the plan was entered into and no later than the the 31st year following the year the plan was entered into for a non-specified plan. Clause 146.1(2)(j)(ii)(A) of the Act has been revised to allow contributions to a family plan in respect of a beneficiary where the beneficiary has not reached 31 years of age. However, clause 146.1(2)(j)(iii)(A) of the Act was not revised, therefore the requirement that an individual has not attained 21 years of age to become a beneficiary in a family plan remains in effect.
Subparagraphs 146.1(2)(i)(i) & (ii) have been revised to change the deadline for plan termination for a specified plan to the 40th year, and for a non-specified plan to the 35th year, following the year the plan was entered into, respectively. Therefore, we can confirm that the life span of the RESP for both family and non-family plans has increased to 35 years following the year the plan was entered into.
As noted subsections 204.9(4) and 204.9(5) of the Act have not been revised, therefore, the requirements regarding a change of beneficiary or a transfer between plans remain in effect. Specifically, in order to avoid the possibility of excess contributions and applicable penalty taxes, the requirement that the beneficiary has not reached age 21 and is a sibling of the beneficiary under the transferring plan remains in effect.
Q.6 In order to register a Retirement Savings Plan (RSP) or a Retirement Income Fund (RIF) the CRA requires the issuer to provide the Social Insurance Number (SIN) of the annuitant and to report it on the list of newly issued plans for the appropriate specimen plan number. If the annuitant is a non-resident and is not eligible to obtain a SIN they must apply for an Individual Tax Number (ITN) using form T1261, Application for Canada Revenue Agency Individual Tax Number (ITN) for Non-Residents.
a) Does the definition of SIN in subsection 237(1) of the Act include ITN for non-residents?
b) Do the requirements of subsections 237(3) and (4) of the Act apply to ITN?
A.6 In general, section 237 of the Act contains rules concerning obtaining, providing and communicating social insurance numbers for income tax purposes. We would refer you to IC82-2R2 Social Insurance Number Legislation that Relates to the Preparation of Information Slips. Section 237 does not apply to Individual Tax Numbers.
The CRA's policy concerning the SIN requirement for registering RSPs is contained in paragraphs 9(a) and 22(a) of Information Circular 72-22R9, Registered Retirement Savings Plans. The CRA relies on the administrative requirements of these 2 paragraphs in requiring a SIN in order to register an RSP.
For your information, a similar question was answered by the CRA at the May 2007 Canadian Life and Health Insurance Association Conference Roundtable and is available under Access under IT Rulings document 2007-0240191C6.
Q.7 a) Has the Registered Plans Directorate (RPD) considered setting up an e-mail box where questions could be asked and the answers provided in a timely manner with both being available to other issuers of Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs)? Such an arrangement would provide the RPD with an avenue for informing RRSP and RRIF issuers of areas of concern and how they should be avoided or resolved. Hopefully it would reduce or eliminate duplication of questions from issuers and would encourage more uniformity of practice among RRSP and RRIF issuers.
b) A variation of or subsidiary to the above might be for the CRA to create a public site where issuers could submit technology questions related to filing requirements (especially RRSP and RRIF), which in turn would receive a timely response by the CRA.
A.7 You can reach the Registered Plans Directorate at the following telephone numbers:
In the Ottawa area
For service in English: 613-954-0419
For service in French: 613-954-0930
Toll free elsewhere in Canada
For service in English 1-800-267-3100
For service in French 1-800-267-5565
Our enquiry lines are open Monday to Friday (except holidays) from 8a.m. to 5 p.m. (Eastern Time). Clients who wish to contact the Directorate after 5 p.m. may leave a message on our voice mail system. We will return the call the following business day.
You may also send your written enquiries to:
Registered Plans Directorate
Canada Revenue Agency
Ottawa ON K1A 0L5
Frequently asked questions and responses are posted regularly on our website under "What's New". Issuers/carriers of RSP/RIF can subscribe to the RPD electronic mailing list and by doing so, are notified by e-mail when important new information is added to the RPD Web site. Please refer to RPD Web site on how to subscribe to this service.
Q.8 RRSP and RRIF At Age 71
If a life insurance company submits a request for specimen plan approval where the retirement savings plan consists of an annuity contract [see paragraph (a) of the definition of registered savings plan in subsection 146(1) of the Act] between the life insurance company and the annuitant and the annuity contract states that the retirement savings plan will automatically become a RRIF at the end of the year in which the annuitant becomes age 71 without any additional application from the annuitant would the CRA approve the request and issue a specimen plan number to this structure?
A.8 CRA would not approve such a specimen. Prior to the end of the year in which the annuitant reaches age 71, the RIF annuitant must fill out an application and make an election based on his/her age or the age of the spouse or common-law partner in order to determine the minimum amount payments. Please refer to subsection 146.3(1) of the Act and paragraphs 3,5,10, 11 and 33 of Information Circular 78-18R6 , Registered Retirement Income Funds.
Q.9 Non qualified investments VS prohibited investments, what is the difference and what are the penalties for each one?
A.9 The terms non-qualified investment, qualified investment and prohibited investment for a trust governed by a Tax Free Savings Account (TFSA) are defined in subsection 207.01(1) of the Act.
Where at any time a property is both non-qualified and prohibited, it is deemed at that time not to be a non-qualified investment, but remains a prohibited investment for the trust - 207.04(3).
The holder of a TFSA is liable to pay a tax where a TFSA trust acquires a non-qualified or prohibited investment or when property held by a TFSA trust becomes a non-qualified or prohibited investment. In the case of property acquired by a TFSA trust, the amount of the tax is equal to 50% of the fair market value of the property at the time the non-qualified or prohibited investment was acquired. Where property held by a TFSA trust becomes a non-qualified or prohibited investment, the tax is equal to 50% of the fair market value of the property at the time the property became a non-qualified or prohibited investment.
The holder of the TFSA is also liable to pay an additional tax on properties that are prohibited investments for the trust. - 207.04(6). Under proposed change, the amount of the tax is equal to 150% of the amount of tax that would be payable under Part I by the TFSA trust for the taxation year that ends in the calendar year if the trust had no income or losses other than from the prohibited investments that it held in the year, and no capital gains or capital losses other than from the disposition of its prohibited investments - 207.04(7).
Where non-qualified investments are held by the trust, tax is payable by the trust on the amount that would be its income for the relevant taxation year if it had no income or losses other than from the non-qualified investments that it held in the year, and no capital gains or capital losses other than from the disposition of its non-qualified investments - re-numbered 146.2(6) (previously 146.2(4)).
Q10 When you refer to the TFSA identification number XXXX XXX, do you mean the Specimen plan number?
A10 The TFSA identification number is the number given to issuers when they submit a copy of their specimen plan together with Form RC236 , Application for a Tax-Free Savings Account Identification Number.
Q11 What taxes will be assessed to individuals on non-qualified or prohibited investments?
A11 Individuals will be subject to a 50% tax of the fair market value (FMV) on non qualified or prohibited property. Individuals will also be subject to an additional tax on all income earned or capital gains realized on prohibited investments. Also refer to Part II, Chapter 2 of the RC4477 Tax-Free Savings Account (TFSA) Guide for Issuers 2009 now available on the Web site and the TFSA page for issuers.
Q12 What taxes will be assessed to the trust on non-qualified investments?
A12 If, at a given time in the taxation year, the TFSA holds a non qualified investment, any income earned or capital gains realized on non-qualified investments will be subject to tax and the issuer will be required to file a T3 Trust Income Tax and Information Return.
Q13 After death, is a spousal transfer possible if the original holder of the TFSA is a non resident? If so, is there a prescribed form that must be used?
What happens if the spouse is also a non resident?
A13 Under certain conditions and limits, the survivor (whether a resident or non resident) may contribute an amount into their own TFSA without affecting their own TFSA contribution room. One of the conditions is that the survivor must designate these contributions as exempt contributions by filing with the CRA a prescribed form within 30 days of making the contribution. In addition, the contributions must be made before the end of the calendar year following the year in which the deceased spouse died. Form RC240, Designating an Exempt Contribution to a Survivor Tax-Free Savings Account (TFSA) should be used.
Non resident spouses may make the exempt contributions if they already hold a TFSA or they are aged eighteen or over and have a Social Insurance Number.
Any payment made by the trust to a non resident beneficiary from a deceased TFSA holder after the date of death and before the end of the calendar year following the year in which the spouse died, must be included in the taxpayer's income insofar as it represents the distribution of income from trust property, or appreciation in value of that property, during the exemption period. Part XIII taxes must be withheld on this amount.
Q14 Overcontribution withdrawal: must we declare these withdrawals annually (in a return)? If so, clarify the information required. Where applicable, will there be a prescribed form for this type of order (similar to the T3012A)?
Q15 On the death of a holder, if a person other than the spouse inherits the TFSA, the TFSA is deemed to end on the date of death; consequently, all income generated after this date is no longer tax exempt. How will said income be taxed? Could we file a T4A or other similar slip indicating the taxable amount? As financial institutions are not informed of the death of a client until several months later, it becomes very difficult for the latter to file income tax slips, as is done if the income had been earned in a regular account (i.e. to report interest, dividends, capital gains, etc. in their original state).
A15 A trusted TFSA may be deemed to continue at the time of death even where there is no spouse or common law spouse. Under proposed legislation, the arrangement is deemed for certain provisions of the Act to continue to exist until the end of the year following the year in which the holder died or, if the date is before, when the trust ceases to exist. This deeming rule is essentially to allow the trust to continue to be exempt from tax until the end of that exemption period.
New paragraph 146.2(9)(b) of the Act requires that any payments made from the trust during the exempt period in full or partial satisfaction of a taxpayer's beneficial interest in the trust be included in the taxpayer's income for the year of receipt, except to the extent designated by the trust as being attributable to the FMV of the TFSA at death. In other words, to the extent that the payment represents the distribution of income earned on, or appreciation in the value of, the trust's property during the exempt period, that amount will be included in the taxpayer's income. This taxable payment must be reported on the T4A slip as "Other income" with the new Footnote 34.
If the TFSA continues to exist after the exemption period, the trust will be taxable from that time onward and will be deemed to have transferred and once again acquired that property at the Fair Market Value (FMV) at that time. The issuer will be required to file a T3 Trust Income Tax and Information Return for each year beyond the exemption period not resolved in the succession.
1. Holder date of death - February 15, 2010
2. No successor-holder of the TFSA
3. FMV of the properties in the TFSA immediately before the death of the last holder - $20,000
The estate is settled on September 30, 2010 and the TFSA is disposed of at FMV of $20,000.
Tax Treatment 1:
The distribution can be made without tax consequences. The trustee, technically, makes a designation under proposed new paragraph 146.2(9)(b) that the entire payment is from the non-taxable pool of pre-death FMV. No T4A is required but the transaction [the distribution] has to be reported to CRA by the end of February of the following year, 2011.
The estate remains unsettled at the end of the calendar year of death, December 31, 2010. Properties held within the TFSA are disposed of at FMV of $20,000. It is assumed from the facts that the trust continues to hold the proceeds of disposition.
Tax Treatment 2:
From the information provided, the exempt period in this example is the period from the date of the holder's death [February 15, 2010] to the end of 2011. Since the proceeds continue to be held by the trust; that is, no distributions [payments] are being made then no T4A reporting is required. As well, there is no requirement for T3 reporting since the trust itself is deemed, under the proposed legislation, to retain its non-taxable status until the end of the exempt period.
The estate is still not settled but a payment is made to a beneficiary on July 15, 2010. At the time of the payment the FMV of the properties still held by the TFSA has appreciated to $25,000. In variation (a) the entire $25,000 is distributed to the beneficiary. In variation (b) the distribution is only $20,000.
Tax Treatment 3:
In variation (a), the FI will determine under paragraph 146.2(9)(b) that up to $20,000 of the payment may be designated as being made out of the non-taxable pool, which leaves the remaining $5,000 as being a taxable payment. The latter will be reported on a T4A as "Other Income" and will be included on the beneficiary's return for the 2010 taxation year. The transaction will be reported to CRA by the FI by the end of February of 2011.
In variation (b), the Financial Institution (FI) will determine under paragraph 146.2(9)(b) that up to $20,000 of the payment may be designated as being made out of the non-taxable pool. A lesser amount may be designated as a distribution from that pool. To the extent that the payment is not from that pool, it is a taxable payment to the beneficiary for the year of receipt and to be reported to CRA by the end of February of 2011. The balance of the TFSA remains in the TFSA trust until either subsequently distributed or until the end of the exempt period [December 31, 2011], whichever occurs earlier. Should the balance of the funds remain in the trust after the end of the exempt period, then the trust becomes an ordinary taxable trust with a taxation year beginning January 1, 2012. Any taxable income [exempt period income and appreciation in value] that had not previously been distributed will become income of the trust in that first taxable year.
Q16 If a Canadian client opens a TFSA and subsequently moves to another country (or the US), will the account continue to enjoy tax free status as a non-resident account? Also, will the non-resident be barred from contributing to the account?
Q17 Will the TFSA enjoy the deferred tax status similar to RSP for US resident clients under Qualified Intermediary Regulations established by the IRS? How are TFSA impacted by IRS Regulations?
A17 The Canada Revenue Agency does not administer U.S. tax law. As a result, it is recommended that you contact the I.R.S. for assistance.
Q18 Can TFSA accounts be opened before January 1, 2009, with money transfers in on the first business day of 2009?
A18 This question has been addressed in the RC4477 Tax-Free Savings Account (TFSA) Guide for Issuers 2009 now available on the Web site.
Q19 If a spouse was not designated formally as a "successor holder" in the TFSA contract but is a beneficiary under the TFSA holder's will, can assets be transferred tax free to the spouse's own TFSA on the death of the TFSA holder?
Q20 Validation of information when setting up an account: Is it possible to forego the validation of social insurance number (SIN) and name with the central database of SIN or any other similar database since the high level of rejects that is going on now with the Education Savings Plan (ESP). Clients are not using the name used in the official database causing a lot of rejects.
A20 No, the SIN, etc. will remain mandatory. This ensures that both our databases contain correct information.
Q21 When processing a file upon death of an individual do you refer to the notion of successor holder of the account?
If so, we have to provide the name of the deceased holder's SIN of the deceased holder's date of death (YY-MM-DD)?
Since our systems do not allow us to change the name of the holder's account upon death (has an effect on other products such as RSP/RIF, etc..) can we provide this information in a new account set-up under the name of the spouse in which the transfer will occur? (There will be no TSFA set-up for the spouse or a different TSFA account set-up after the death of the holder.)
If so, this procedure will prevent us from sending the prescribed form within 30 days.
A21 The concept of a successor holder already exists in the RIF regime (successor annuitant). We were advised that when a successor annuitant takes over, there is no change in the contract number. There is simply a new owner. The same would hold for TFSAs. The reporting requirements when a successor holder takes over were already discussed in the data elements provided to the industry.
Note: CRA was told during a conference held on October 8th that this mechanism for reporting a successor holder is not an easy process for financial Institutions. The CRA has advised that FIs could send us suggestions that would meet their needs and we would look at them.
The prescribed form is not used in a case where we have a successor holder. A successor holder does not have to designate an exempt contribution as the plan continues to exist after the holder's death.
The prescribed form would be used by a survivor that is not a successor holder to designate a contribution as an exempt contribution (defined in proposed changes 207.07(1) Exempt contribution).
Answers provided by the IRPPD
Q22 Can RRSP contribution receipts be issued in US dollars for a US dollar account?
A22 No. RRSP contribution receipts must be issued in Canadian dollars.
Q23 If a FI receives a Form T3012A, Tax Deduction Waiver on the Refund of Your Unused RRSP Contributions, approved by CRA, and another FI name and RRSP contract number is shown in Part 2 of the form, can the FI process the withdrawal without tax withholding if its records confirm that the RRSP identified in Part 2 was transferred to it by the other FI?
A23 Yes. The CRA approves Form T3012A so that an FI has "reasonable grounds" to believe that the payment it makes in respect of the approved form may be deducted under subsection 146(8.2) of the Act in computing the income of any taxpayer. This reasonable grounds is necessary so that the exception to the requirement to withhold tax provided in subparagraph 100(1)(i)(ii) of the definition "remuneration," or paragraph 103(6)(c) of the definition "lump-sum payment" in Part I of the Income Tax Regulations applies.
An approved Form T3012A is, in effect, the CRA's pre-approval of a deduction that will be claimed by the recipient to offset the payment that the recipient must include in income for the year in which it is received. The deduction can be claimed by the recipient whether or not the payment is received from the same plan to which the unused contribution was contributed. Our only requirement is that the payment be received from the same type of plan to which the contribution was made (i.e. either a personal RRSP or a spousal RRSP).
More information about a taxpayer claiming a deduction to offset an income inclusion for an unused RRSP contribution is available under "Unused RRSP contributions" of the T4040 guide, RRSPs and other Registered Plans for Retirement.
Q24 Does the CRA have any plans to change the lump-sum withholding tax rates that apply to multiple withdrawals made over a short period of time, such as adding a threshold after which all withdrawals in the same year would be subject to the higher withholding rate?
A24 No. We have no plans to change the calculation of how tax should be withheld in respect of multiple withdrawals from an RRSP or a RRIF over a short period of time. The information about tax withholding at the end of the answer to question 7 continues to apply.
Q25 Does the CRA have any guidelines that FIs should follow where they are asked by taxpayers to cancel their RRSP contributions because they over-contributed, or to cancel their RRSP withdrawal because they want to put it back in their RRSP?
A25 No. We do not have any specific guidelines. However, as a matter of practice, if a taxpayer makes a payment that satisfies the meaning of the term "premium" under a retirement savings plan in subsection 146(1) of the Act, the premium cannot be cancelled. Similarly, if a taxpayer receives a withdrawal from their RRSP, the withdrawal cannot be cancelled and returned to their RRSP.
If a taxpayer has over-contributed and does not want to use Form T3012A, the taxpayer can withdraw the amount with ordinary tax withholding at source. If the amount is subject to the 1% per month excess contribution tax, we encourage taxpayers to withdraw the excess contribution immediately rather than waiting until a Form T3012A is approved by us. This minimizes a taxpayer's liability for the 1% monthly tax.
Taxpayers who do this can use Form T746, Calculating Your Deduction for Refund of Unused RRSP Contributions, to determine the deduction they can claim under subsection 146(8.2) of the Act. They can also claim credit for the tax withheld when they file their individual income tax return for the year they receive the payment.
Q26 Is year-end valuation reporting for RRSPs, RRIFs and RESPs required?
A26 No. There is no requirement to report year-end valuations for RRSPs, RRIFs and RESPs.
Death of an RRSP or a RRIF Annuitant
We were asked some general questions and many case-specific questions concerning this matter. We cannot adequately answer all of the case-specific questions because we were not provided with all the relevant facts. However, we hope that the following information is sufficient to answer most questions. If not, please send your case-specific questions to the following address. Please ensure that these questions include complete taxpayer identification data, as well as all relevant information and documentation.
Pensions and Partnership Projects Section
Individual Returns and Payments Processing Directorate
Canada Revenue Agency
25 MacArthur Road
Ottawa ON K1A 0L5
Q27 How are RRSP proceeds reported in respect of the death of the annuitant?
A27 The T4079, T4RSP and T4RIF Reporting Guide has information about reporting amounts in respect of the death of the annuitant.
Pages 9 and 10 have information about reporting amounts in box 34 "Amounts deemed received on death". The information indicates that the deceased annuitant of an unmatured RRSP is considered to have received, just before death, an amount equal to the FMV of the RRSP property at the time of death. The information also indicates that the issuer may not have to issue a T4RSP slip in the deceased annuitant's name and that, before the FMV at the time of death is entered in box 34, readers should consult the information titled "Deceased annuitant - Unmatured RRSPs" that begins on page 14.
Page 14 provides information about a number of issues related to the tax treatment of unmatured RRSPs on the death of the annuitant, including information about the terms "qualified beneficiary", "exempt period", and "tax-paid amount".
Pages 15 and 16 explain how to issue slips for most situations. Situation 1 on page 15, which is summarized below, is the only situation for which the CRA does not require the issuer to report the FMV of the RRSP property at the time of death on a T4RSP slip issued to the deceased annuitant for the year of death.
Situation 1 requires a T4RSP slip to be issued in the name of the spouse or common-law partner to report in box 18 "Refund of premiums", all the property of the unmatured RRSP that is directly transferred by the issuer by December 31 of the year after the year in which the annuitant died. The T4RSP slip is issued for the year in which the direct transfer is made, and will be either the year of death or the year after the year of death. Note that December 31 of the year after the year of death is the end of the exempt period.
For situation 1 to apply:
- the deceased annuitant's spouse or common-law partner must be named as beneficiary of all the RRSP property in the RRSP contract (see the exception to this rule explained in the note on page 15 for certain RRSP contracts set up in the province of Quebec);
- the issuer must make a direct transfer of all the RRSP property to the spouse or common-law partner's RRSP or RRIF, or to an issuer to buy an eligible annuity for the spouse or common-law partner; and
- all the RRSP property must be directly transferred by December 31 of the year after the year of death, which is the end of the exempt period.
The chart on page 16 explains how to issue T4RSPs slips for all other situations involving the death of the annuitant of an un matured RRSP. The amounts described in the second column are to be reported on T4RSP slips for the year in which the amounts are paid from the RRSP rather than for the year in which they were earned or realized by the RRSP.
For example, if an annuitant died in 2008, and the income earned or realized from the date of death until December 31, 2009, is not paid to the spouse or common-law partner until 2010, the T4RSP slip is to be issued to report that income as a refund of premiums received for 2010.
The amounts described in the third column are to be reported as follows:
- Depositary RRSP - Report the interest on a T5 slip for the year in which it is credited or added to the deposit. This may or may not be the year in which the RRSP is distributed to the beneficiary.
- Trusteed RRSP - Report the RRSP benefit on a T4RSP slip in boxes 28 and 40 for the year in which it was paid to the beneficiary if it was income of the trust in that year. If the income of a trusteed RRSP is not paid to the beneficiary in the year that it is trust income, a T3 Trust Income Tax and Information Return must be filed and the trust must pay the tax on its taxable income for all such years. The after-tax amount is to be reported in box 40 of a T4RSP slip for the year in which it is paid to the beneficiary.
- Insured RRSP - Report the RRSP benefit in box 28 of a T4RSP slip for the year in which it is paid to the beneficiary.
To conclude, where an FI is advised in a timely manner about the death of the annuitant of an unmatured RRSP (i.e. in the year of death or the year after the year of death), the FI should review the RRSP contract and determine whether the spouse or common-law partner is named the beneficiary of all the RRSP property. If so, enquiries should be made to determine whether the spouse intends to have all the RRSP property directly transferred by December 31 of the year after the year of death to their RRSP, RRIF, or used to purchase an annuity. If so, and the direct transfer is completed by December 31 of the year after the year of death, no T4RSP slip is to be issued to the deceased annuitant for the year of death. If not, a T4RSP slip must be issued to the deceased annuitant for the year of death to report the FMV of the RRSP property at the time of death in box 34.
Q28 [question was deleted in July 2009]
Q29 Our firm made automated RRIF payments (both minimum and excess amounts) to an annuitant's bank account for the last three years. Income tax was withheld from the excess amount. We were recently advised that the annuitant died three years ago. Are we required to issue amended T4RIF slips?
A29 Technically, amended T4RIF slips are required because the annuitant did not receive the payments made after his or her death, and as such, these payments are not the deceased annuitant's income.
However, we may not require that amended T4RIF slips be issued if the payments were made to an account jointly held by the deceased annuitant and the annuitant's spouse or common-law partner.
If the payments were made to such an account and the spouse or common-law partner is named in the RRIF contract as the sole beneficiary, or in the RRIF contract or the decedent's Will as the successor annuitant, we may administratively waive the requirement to issue amended T4RIF slips. If neither of these applies, we still may not require amended T4RIF slips to be issued if the deceased's legal representative consents and the carrier agree to allow the spouse or common-law partner to become the successor annuitant.
For any of these situations to apply, however, the spouse or common law partner must have reported as income the payments that were made after the annuitant's death, or be prepared to report them as income.
Consequently, the CRA must be provided with complete taxpayer identification data, as well as all relevant information and documentation as we will only administratively waive the requirement to issue amended slips on a case-by-case basis.
Q30 When handling T4RSP and T4RIF slip reporting for trusted RRSPs and trusted RRIFs of deceased annuitants that have not been distributed by the end of the exempt period, our firm's practice has been to issue:
a) A T4RSP slip or T4RIF slip for the date of death FMV, and
b) Additional T4RSP slips or T4RIF slips for each subsequent year where there has been an increase in the market value of the account.
Is this correct?
A30 No. Refer to our response to question 27 "How are RRSP proceeds reported in respect of the death of the annuitant?" and to Chapter 4 of the T4079, T4RSP and T4RIF Reporting Guide.
In summary, a T4RSP or T4RIF slip issued for the date of death FMV is correct. However, T4RSP and T4RIF slips are not to be issued for market value increases. For years that end after the exempt period, slips are to be issued as follows:
- If the income earned or realized by the trusted RRSP for such a year is paid to the beneficiary in the year that it is trust income, it is an RRSP benefit. Report the benefit on a T4RSP slip in boxes 28 and 40 for the year in which it was paid to the beneficiary.
- If the income earned or realized by the trusted RRSP for such a year is not paid to the beneficiary in the year that is trust income, it is not an RRSP benefit. A T3 Trust Income Tax and Information Return must be filed and the trust must pay the tax on its taxable income for all such years. The after-tax amount is not income, but is reported as a tax-paid amount in box 40 of a T4RSP slip for the year in which it is paid to the beneficiary.
- If the income earned or realized by the trusted RRIF for such a year is paid to the beneficiary in the year that it is trust income, it is a RRIF benefit. Report the benefit on a T4RIF slip in boxes 22 and 36 for the year in which it was paid to the beneficiary.
- If the income earned or realized by the trusted RRIF for such a year is not paid to the beneficiary in the year that is trust income, it is not a RRIF benefit. A T3 Trust Income Tax and Information Return must be filed and the trust must pay the tax on its taxable income for all such years. The after-tax amount is not income, but is reported as a tax-paid amount in box 36 of a T4RIF slip for the year in which it is paid to the beneficiary.
For example, if an annuitant of a trusted RRSP dies in 2008, the exempt period ends December 31, 2009. If the income earned or realized by the trust in 2010 is paid to the beneficiary in 2010, the payment is an RRSP benefit to be reported in boxes 28 and 40 of a 2010 T4RSP slip. No T3 Trust Income Tax and Information Return for 2010 is required.
On the other hand, if the income earned or realized by the trust in 2010 is not paid to the beneficiary until 2011, the trustee has to file a T3 Trust Income Tax and Information Return for 2010 on behalf of the trust and pay the tax on the trust's 2010 taxable income. The after-tax amount and the 2011 trust income, if any, that is paid to the beneficiary in 2011 is reported in box 40 of a 2011 T4RSP slip issued to the beneficiary. The 2011 trust income is also reported in box 28 of that T4RSP slip.
Q31 We would like some clarification regarding source deductions to be made when an accumulated income payment (AIP) is made to the subscriber. Guide RC4092 indicates that promoters usually have to withhold regular and additional taxes on the AIPs. We were of the opinion that the additional tax was to be paid by the client by completing form T1172. We contacted CRA for clarification and were told that we did not have to withhold taxes (regular or additional) when an AIP is made.
Are we supposed to make source deductions?
If so, which rate do we use?
A31 In order to determine whether source deductions are necessary, we must examine the applicable legislation.
Income Tax Act:
153(1) Every person paying at any time in a taxation year:
(t) a payment made under a plan that was a registered education savings plan
shall deduct or withhold from the payment the amount determined in accordance with prescribed rules and shall, at the prescribed time, remit that amount to the Receiver General on account of the payee's tax for the year under this Part or Part XI.3, as the case may be, and, where at that prescribed time the person is a prescribed person, the remittance shall be made to the account of the Receiver General at a designated financial institution.
Income Tax Regulations:
101. Every person who makes a payment described in subsection 153(1) of the Act in a taxation year shall deduct or withhold there from, and remit to the Receiver General, such amount, if any, as is determined in accordance with rules prescribed in this Part.
103(8) Every employer making a payment described in paragraph (n) of the definition "remuneration" in subsection 100(1) shall withhold - in addition to any other amount required to be withheld under Part I of these Regulations - on account of the tax payable under Part X.5 of the Act, an amount equal to
(a) where the amount is paid in the province of Quebec, 12% of the payment, and
(b) in any other case, 20% of the payment.
"remuneration" includes any payment that is
(n) a payment out of a registered education savings plan other than
(i) a refund of payments,
(ii) an educational assistance payment, or
(iii) an amount, up to $50,000, of an accumulated income payment that is made to a subscriber, as defined in subsection 204.94(1) of the Act, or if there is no subscriber at that time, that is made to a person that has been a spouse or common-law partner of an individual who was a subscriber, if
(A) that amount is transferred to an RRSP in which the annuitant is either the recipient of the payment or the recipient's spouse or common-law partner, and
(B) it is reasonable for the person making the payment to believe that that amount is deductible for the year by the recipient of the payment within the limits provided for in subsection 146(5) or (5.1) of the Act;
According to the Act and the Regulations, taxes must be withheld on any amount that is not a refund of payments, an educational assistance payment or an AIP made to a subscriber who transfers it to an RRSP, if he or she can deduct it in his or her tax return. The amount to be withheld will be determined by Section 102 or 103 of the Regulations, based on whether or not payments are periodic. In addition to the normal deductions, additional taxes of 20% (12% where the amount is paid in the province of Quebec) shall also be withheld. Form T1172, Additional Tax on Accumulated Income Payments from RESPs, is used by the taxpayer to compute the additional tax to be paid on the amounts received when the income return was filed. If the taxpayer transfers all or part of the AIP to an RRSP and is entitled to a deduction, the taxpayer and the promoter can complete form T1171, Tax Withholding on Accumulated Income Payments from RESPs. This form authorizes the RESP promoter to not withhold taxes on an AIP in such a case.
Q32 In the case of an educational assistance payment (EAP) made to a beneficiary who is a non-resident, which non resident tax rate should be used for source deductions (10%, 15% or 25%)? The tax conventions do not mention RESPs in the payments. We assume that 25% must be withheld.
A32 According to paragraph 212(1)(r), every non-resident person must pay an income tax of 25% on every amount that a person resident in Canada pays or credits as payment of or as a portion of an RESP. A payment that is
(i) required by paragraph 56(1)(q) to be included in computing the non-resident person's income under Part I for a taxation year, and (ii) not required to be included in computing the non-resident person's taxable income or taxable income earned in Canada for the year.
Amounts to be included in the year's income
56(1) Without restricting the generality of section 3, there shall be included in computing the income of a taxpayer for a taxation year,
(q) amounts in respect of a registered education savings plan required by section 146.1 to be included in computing the taxpayer's income for the year;
Educational assistance payment (EAP)
146.1(7) There shall be included in computing an individual's income for a taxation year the total of all educational assistance payments paid out of registered education savings plans to or for the individual in the year.
Under Part XIII, EAPs are therefore taxable at 25% when they are paid to non residents. However, since they are technically considered to be trust income, these amounts may be reduced pursuant to tax conventions between Canada and other countries. According to Article XXII of the tax convention between Canada and the United States, the rate is limited to 15%. This is consistent with opinion No. 9500385 of the Income Tax Rulings Directorate of March 1, 1995 (English).
Q33 When a subscriber becomes a non-resident, is he or she subject to tax deductions under Part XIII (non-resident tax), i.e. is income from Canadian sources subject to a 25% deduction or the rate in effect with the country concerned? We have received two different opinions on this subject.
A33 We should add subsection 146.1(7.1) to the legislation references for the preceding question:
(7.1) There shall be included in computing a taxpayer's income for a taxation year
(a) each accumulated income payment received in the year by the taxpayer under a registered education savings plan; and
(b) each amount received in the year by the taxpayer in full or partial satisfaction of a subscriber's interest under a registered education savings plan (other than any excluded amount in respect of the plan).
Since there is Part XIII tax on all amounts related to RESPs, if the subscriber is a non resident, he or she must pay 25% tax on these amounts. It should be noted that refunds of payments made to a subscriber are not taxable, as described in opinion No. 9824495 of the Income Tax Rulings Directorate of December 15, 1998 (English). However, since they are technically considered to be trust income, these amounts may be reduced pursuant to tax conventions between Canada and other countries. According to Part XXII of the tax convention between Canada and the United States, the rate is limited to 15%.
Q34 Occasionally we cannot contact clients because they did not leave a forwarding address. Would RCA be able to provide their addresses?
A34 Refer to the information sheet in your handout.
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