Some recent technical interpretations from the Canada Revenue Agency (“CRA”) remind us that tax free rollover of retirement plans have to be carefully planned and executed to get the desired result. Here are a couple of cases in point:

Rollover of a Registered Pension Plan (“RPP”) to an infirm dependent child

In a recent technical interpretation, CRA concluded that where a RPP lump sum death benefit is paid from the RPP to the deceased’s financially dependent infirm child, the RPP benefit would generally be eligible for a tax free rollover under the Income Tax Act (“ITA”), provided certain conditions are met. If, however, the RPP is paid to the deceased’s estate, and subsequently paid to the deceased’s financially dependent child, a rollover is not available.

Registered Retirement income Fund (“RRIF”) – rollover of designated benefit

Mrs. Y died in November 2016. The minimum RRIF withdrawal for 2016 of $12,000 was fully withdrawn prior to Mrs. Y’s death. The value of Mrs. Y’s RRIF just prior to death was $240,000. The RRIF was transferred to Mr. Y in 2017. Its value was unchanged from the date of Mrs. Y’s death. The minimum withdrawal in 2017 was to be $12, 000. Nevertheless, the amount eligible for the tax free rollover would be $240,000, right? Actually no, there is a wrinkle.

In a recent technical interpretation, CRA opined that the designated benefit eligible to be rolled-over to the surviving spouse’s RRIF or RRSP under the tax rollover provisions of the Act would have to be reduced by the minimum RRIF withdrawal amount when the transfer occurs in the year after death.

The CRA concluded that although there is no requirement to pay the minimum amount in 2017, the amount that the spouse can claim as a deduction under the applicable provisions of the Act must be reduced by the minimum withdrawal in the year. That is, a maximum deduction of $228,000 ($240,000 – $12,000) would be permitted.

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