Tag: RRSPs and Beneficiaries

31 Aug

Who Pays the Tax on an RRSP?

Noah Weisberg Beneficiary Designations, Estate Planning, RRSPs/Insurance Policies, Uncategorized Tags: , , , , , , , , , 0 Comments

If a Registered Retirement Savings Plan passes outside of an Estate, for example to a spouse or child, who pays the tax – the recipient beneficiary or the Estate?

In order to answer this question, first consider the terms of the Will.

If the Will does not clearly set out who is responsible, attention must be turned to the statute and common law.

According to section 160.2(1) of the Income Tax Act, the deceased testator and the recipient of the RRSP are jointly and severally liable for the payment of the tax.  The section specifically states that “…the taxpayer and the last annuitant under the plan are jointly and severally, or solidarily, liable to pay a part of the annuitant’s tax…”.

Ontario common law has, however, held that the payment of any tax liability with respect to an RRSP remains the primary obligation of the estate.  Payment should be sought from the RRSP recipient, only if there are insufficient assets in the estate to satisfy the tax obligation.

In Banting v Saunders, Justice J. Lofchik held that:

“…the estate, rather than the designated beneficiaries, is liable for the income tax liability arising from the deemed realization of the R.R.S.P.’s and R.R.I.F.’s so long as there are sufficient assets in the estate including the bequest to Banting, to cover the debts of the estate and it is only in the event that there are not sufficient assets in the estate to cover all liabilities that the beneficiaries of the R.R.S.P.’s and the R.R.I.F.’s may be called upon.”

Nonetheless, as set out in O’Callaghan v. The Queen, the CRA may first seek payment directly from the RRSP recipient, instead of the estate, especially if there is a possiblity that there are insufficient assets in the estate to satisfy the tax.

Noah Weisberg

Find this blog interesting?  Please consider these other related posts:

15 Aug

Hull on Estates #343 – RRSP’s and Beneficiaries

Hull & Hull LLP Hull on Estates, Podcasts, Show Notes, Show Notes Tags: , , , , , , , , , , 0 Comments

Listen to: Hull on Estates Episode #343 – RRSP’s and Beneficiaries

Today on Hull on Estates, Paul Trudelle and Stuart Clark discuss the recent case of Kiperchuk v. The Queen, and whether an RRSP that passes to a designated beneficiary on death is available to CRA to satisfy the deceased’s tax debt.

If you have any questions, please email us at hull.lawyers@gmail.com or leave a comment on our blog page.

Click here for more information on Paul Trudelle.

Click here for more information on Stuart Clark.

 

SUBSCRIBE TO OUR BLOG

Enter your email address to subscribe to this blog and receive notifications of new posts by email.
 

CONNECT WITH US

CATEGORIES

ARCHIVES

TWITTER WIDGET