All About Estates

Registered Disability Savings Plan Rollover – Or Not

The CRA was asked in the hypothetical scenario presented involving a deceased registered pension plan (“RPP”) member’s pension benefit if whether the RPP member’s financially dependent infirm child and the child’s registered disability savings plan (“RDSP”) fall within the parameters of the RDSP rollover provisions.

The scenario presented is that a member of an RPP names their estate as beneficiary of the member’s pension. The member dies, and a lump sum pension benefit is paid from the RPP to the deceased’s estate. A financially dependent infirm child of the deceased is a beneficiary of the estate. The child was eligible for the disability tax credit in the year the member died and in the preceding year, and the deceased’s estate pays the lump sum pension benefit to the child, and the child contributes the pension benefit to the child’s RDSP in the year received.

In the response, the CRA noted that a taxpayer is allowed a deduction in respect of amounts paid to an RDSP. In general, the tax rules allows a financially dependent infirm child of a deceased member of an RPP to claim a deduction in a taxation year for specified RDSP payments. The deduction claimed cannot exceed the amount of eligible proceeds that are included in the child’s income for the year. An “amount of eligible proceeds” includes an amount received by a financially dependent infirm child of a deceased member of an RPP that is paid out of or under the RPP as a consequence of the death of the RPP member.

In the hypothetical scenario described above, the amount paid to the financially dependent infirm child is paid from the estate of the deceased RPP member and not out of or under an RPP under which the deceased was a member. In the end, a rollover would not be permitted.

About Derek de Gannes
Derek A. de Gannes: Director, Domestic & International Tax of RSM Canada. RSM Canada is committed to the highest level of integrity, quality and professionalism and provides clients with solutions in the area of Audit, Tax and Transaction Services. Email: derek.degannes@rsmcanada.com