Many have taken advantage of the ability to withdraw funds from a retirement savings plan under either the Home Buyer’s Plan or Lifelong Learning Plans. Without careful planning, unpaid obligations under either of these plans may have tax implications on death.
The basic rule for both types of plan is that any outstanding balance of withdrawals made under the plan must be included in the taxpayer’s ordinary income for the year of his or her death. The outstanding balance included in income is calculated as the individual’s plan balance immediately before death, which will include all previous eligible amounts received, minus the total of all amounts repaid and all amounts included in the deceased’s income for prior years for failure to make the minimum repayments or becoming a non-resident.
The basic rule is waived where the deceased taxpayer is survived by a spouse or common-law partner who was resident in Canada immediately before the taxpayer’s death. In these circumstances the taxpayer’s representative and the spouse or common-law partner can jointly elect in the taxpayer’s terminal return to have the taxpayer’s repayment liability transferred to the surviving spouse or common-law partner at the time of death. The result of the election is to transfer the full repayment liability from the deceased taxpayer to the surviving spouse or common-law partner. No form is currently prescribed for the election; it is merely to be a written statement accompanying the terminal return.
Take the time to consult a pro when considering the tax implications of unpaid obligations under either of these plans.