Yesterday I blogged about an Alberta case where, although it was found that a RRIF belonged to a designated beneficiary and was not subject to application of the resulting trust principle established in Pecore, the beneficiary was required to personally bear the RRIF tax obligation on various grounds, including that (i) it was “manifestly unfair” that the Estate pay the tax as such result would preclude certain gifts in the Will from being made, (ii) the designated beneficiary would otherwise be unjustly enriched and (iii) the Court inferred that the testator was under the mistaken impression that the tax obligation would be paid out of his estate assets.
Given the provisions of our governing statutes and their interpretation by the Courts, in Ontario we would not likely see this type of outcome. The applicable legislation is:
- Subsection 2(1) of the Estates Administration Act (“EAA”)– it provides that the designation of a beneficiary of a fund is a testamentary disposition, such that the fund devolves to the estate and is subject to the claims of creditors.
- Section 53 of the Succession Law Reform Act (“SLRA”) – it provides that if a person is designated as the beneficiary of a plan, the person administrating the plan can pay the full proceeds to the named beneficiary. The administrator is discharged from any further obligation with respect to payment, and the named beneficiary may enforce payment of the benefit.
Section 53 has been interpreted by the Ontario Court of Appeal as an exception for RRSPs (and other such funds) from s. 2(1) of the EAA such that these types of assets do not form part of an estate but instead devolve directly to the designated beneficiary: see Amherst Crane Rentals v Perring, 2004 CanLII 18104 (ON CA).
In Amherst, the appellant was a creditor of the deceased. The respondent was the deceased’s widow and designated beneficiary of RRSP funds. The estate was insolvent, and the creditor sought to obtain payment of the debt owed from the proceeds of the RRSPs. The application Judge held that the RRSPs devolve directly to the designated beneficiary – the creditor had no right to seek repayment of the debt from the proceeds of the RRSPs, even though the estate was unable to pay its debts. The decision was appealed, and upheld by the Court of Appeal for Ontario.
So in Ontario it would appear the only way to get assets such as RRSPs and RRIFs clawed back into an estate is through the provisions of section 72 of the SLRA.
Thanks for reading and have a great weekend,
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.
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In Kiperchuk v. The Queen, 2013 TCC 60 (CanLII), the Tax Court of Canada held that a spouse who received RRSP benefits upon her spouse’s death was not liable to pay the deceased’s unpaid tax debt arising prior to his death.
There, deceased designated his wife as the beneficiary of his RRSP. The couple subsequently separated, and divorce proceedings were commenced. However, the designation remained in place. Prior to his death, the deceased incurred significant tax debts, which were unpaid as at the time of his death. His estate was insufficient to pay the tax debts. CRA sought to find the wife liable for the unpaid taxes. It relied on s. 160 of the Income Tax Act which, in effect, imposes joint liability for unpaid taxes (to a certain extent) where a tax payer transfers property to a spouse, child or “person with whom the person was not dealing at arm’s length” for less than fair market value.
The Court refused to find the wife liable. Although it had no difficulty in finding that there was, in fact, a transfer, the transfer took place at the time of death. As of that date, the status of marriage ended due to death, and the wife was, therefore, no longer a spouse, and further, “nor was she a person with whom the transferor was not dealing at arm’s length at the time of the transfer”.
The Court may have been splitting hairs here. The transfer took effect on the moment of death, and as of that moment, according to the reasoning, the parties were no longer spouses: the husband “was not related to the appellant by marriage at the time she became entitled to the RRSP”. “The status of marriage is ended by death… .”
Further, the Court does not give much explanation as to why it considered the transfer to be at arm’s length.
Finally, the limited application of the case should be noted. The case dealt only with tax liability arising before death: a beneficiary of an RRSP is liable for unpaid income tax on the RRSP proceeds where the estate is unable to pay: s. 160.2(1) of the Income Tax Act.
Thank you for reading.
Listen to Dependant Relief.
This week on Hull on Estates, Natalia Angelini and Craig Vander Zee discuss dependant relief and reference a variety of cases that utilized the Succession Law Reform Act.
Listen to Applying for Probate
This week on Hull on Estate and Succession Planning, Ian and Suzana talk about the applying for probate. They discuss some of the ways that estate administrators can simplify the process.