The Canada Revenue Agency (CRA) says that, if an annuitant should die before the funds are actually moved, RRSP proceeds transferred to a spouse upon the breakdown of a marriage will no longer be tax exempt.
In a recent technical interpretation (2014-0539151E5), the CRA considered the case of someone who signed and submitted Form T2220, asking that a financial institution transfer RRSP funds to a spouse's RRSP. Under paragraph 146(16)(b) of the Income Tax Act, it is generally possible to move funds from an unmatured registered retirement savings plan upon the breakdown of marriage or common-law partnership without triggering any tax. However, in this situation, the RRSP owner died before the financial institution transferred the money.
Asked if the transfer could still be completed tax-free under paragraph 146(16)(b), the CRA said that it believes that this section of the Income Tax Act only applies to the living.
"The Act does not have a definition for ‘transfer. or ‘transfer of property’, but it is our view that, for the purposes of subsection 146(16), it only encompasses actual direct transfers of property from the individual's RRSP to the individual's spouse's RRSP while the individual is still alive," answered Lita Krantz, an accountant with the CRA's Income Tax Rulings Directorate. "Consequently, it is our view that subsection 146(16) would not apply in your situation."