| Glossary of
Financial Terms | | |
 The
Companion Advisor: Taxes
& Estates
Death and taxes - Part 5/7
If there is no surviving spouse and the beneficiary
of the RRSP is a financially dependent child or grandchild, the proceeds
of the RRSP still qualify as a refund of premiums. The Income Tax Act
considers a child not to be financially dependent on the deceased annuitant
if that child's income for the year preceding the annuitant's death was
more than $7,231(for the year 2000). This refund of premiums would be
taxable in the hands of the child and not the deceased annuitant. The
proceeds of the RRSP could be used to purchase an annuity that must end
by the time the child reaches the age of 18.
This alternative has the effect of spreading the tax on the RRSP proceeds
over several years, allowing the child to take advantage of personal tax
credits, as well as graduated marginal tax rates each year until he or
she reaches the age of 18.
There is one situation in which RRSP money can be transferred to a child's
or grandchild's own RRSP or RRIF. If there is no surviving spouse and
the financially dependent child or grandchild was dependent on the deceased
annuitant by reason of physical or mental infirmity, then the amount
that qualifies as a refund of premiums may be rolled over into the child's
RRSP or RRIF. In all other situations, if there is no surviving spouse
and the children were not financially dependent on the deceased, the entire
value of the RRSP will be taxable in the deceased annuitant's terminal
return.
Example #5
Nancy has received Jack's RRSP as a refund of premiums and transferred
the $300,000 to a RRSP account in her own name. As outlined in example
#4, this defers the tax otherwise due upon Jack's death. She names
her 35-year-old daughter Judy as the beneficiary of her RRSP. Judy
has a great job and isn't mentally or physically challenged. When
Nancy passed away in February 2001, the fair market value of the mutual
fund investment has grown to $310,000. The entire amount is taxable
on Nancy's 2001 terminal tax return; no further relief, rollovers
or planning to postpone the tax liability is possible. |
The information in is article
is subject to change, therefore be advised its content should be viewed
as illustrative to the context of the article. Income tax laws change
over time therein rendering certain numbers quoted obsolete. Please
consult current tax rules or directly at CCRA
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, Fiscal Agents Money Management Newsletter
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