In a June 6, 2017 French Technical Interpretation (2015-0617331E5, Roy, Louise), CRA considered whether the transfer of a deceased’s TFSA to their spouse could constitute an exempt contribution. To the extent the payment is made in accordance to the will, CRA opined that the payment is made as a result of the individual’s death. The amount may still qualify as an exempt contribution regardless of whether it is paid directly to the deceased’s spouse, or first to the estate, and then the deceased’s spouse.CRA also opined that the payment could be an exempt contribution where it related to a debt due to the division of family property, the dissolution of the matrimonial regime, a gift made by marriage contract, or a post-mortem support obligation. An exempt amount must be paid during the rollover period (must occur by the end of the calendar year following the death), and the amounts must be distributed as a consequence of the individual’s death.An exempt contribution allows for an addition to one’s TFSA account without reducing the available contribution room.
TESTAMENTARY TRUST AS A BENEFICIARY OF AN ESTATE
Where an estate, trust or beneficiary acquires a right or thing upon a taxpayer’s death, several tax consequences may arise, as follows:
- the value may be included in the deceased taxpayer’s final income tax return (Subsection 70(1));
- the value may be reported in a separate elective return(Subsection 70(2)); or
- the value may be taxed when ultimately received by the beneficiary who inherits it (Subsection 70(3)).
The beneficiary will be taxable where a right or thing has been transferred or distributed to a beneficiary within the prescribed time limit, no later than one year after the date of death or 90 days after the date of mailing of any notice of assessment or reassessment in respect of the year of death, whichever is later. Where this requirement is met, the tax liability arises when the beneficiary realizes or disposes of the right or thing. See Interpretation Bulletin IT-212R3, Income of Deceased Persons – Rights or Things, for more information on these items.
In a June 28, 2017 French Technical Interpretation (2016-0653921E5, Allaire, Lucie), CRA was asked whether a testamentary trust could be a beneficiary of an estate or a person beneficially interested in an estate for these purposes.
A deceased artist had previously made an election to value their artistic inventory at nil (Subsection 10(6)), allowing the individual to deduct the costs associated with the inventory in the year incurred rather than when the inventory is sold. The artwork is considered a right or thing. Upon the individual’s death, the artwork was bequeathed to a testamentary trust.
CRA opined that the testamentary trust could be a beneficiary of an estate or a person beneficially interested in an estate. Therefore, if no election were made to report the deceased’s rights or things in a separate return (Subsection 70(2)), the income inclusion could be deferred until when the artwork was disposed of by the testamentary trust.
CPP SURVIVOR BENEFIT – TIMELY FILING OF APPLICATION
In a May 30, 2017 Federal Court case (Flaig vs. Attorney General of Canada, T-538-16), at issue was whether the taxpayer could obtain CPP survivor benefits retroactive to the date of her husband’s death in 2007. The taxpayer made the application for the CPP survivor benefit in 2012. Benefits were provided back to 2011, not the requested date in 2007.
Taxpayer loses The Court opined that as the taxpayer did not demonstrate that she was incapable of forming or expressing an intention to make an application for survivor benefits before she actually made the application, she was unable to go back beyond the standard 1-year retroactive look back period for the benefits.
TIMING OF CPP COLLECTION – GENDER CONSIDERATIONS
An August 10, 2017 Globe and Mail article (Why women (especially) should delay taking CPP, by Bonnie-Jeanne MacDonald) discussed the merits of deferring application for CPP until age 70. This increasesthe monthly benefits by 42% over collecting at age 65.The article noted that a 65 year old woman today can expect to live for 22 years, three years longer than a male. Deferring CPP to age 70 will result in total benefits about 9.7% greater than collecting at age 65.For a male, the increase would be about 6.1%.
The article also noted further reasons to draw extra funds from an RRSP from age 65 to age 70 and defer CPP application, including the following:
- reduced investment risk as the funds to be withdrawn from the RRSP would presumably be held in low-risk assets;
- inflation protection as CPP is fully indexed;
- reduced risk of outliving one’s retirement income, as CPP is guaranteed for life;
- less stress from managing investments; and
- reduced exposure to fraud – and to pressure from relatives seeking loans – by reducing accessible savings.
The article noted that women tend to be more risk-averse, leading to a preference for the guaranteed income provided by CPP. It also noted many other considerations which may suggest collecting CPP earlier, such as an expectation of a shorter lifespan.
Finally, the article suggested that women expecting to be eligible for Guaranteed Income Supplement (GIS) payments should apply for CPP at age 60 as CPP will erode their GIS eligibility. As well, lower income seniors tend to have shorter lifespans.