It is unfortunate that this rollover didn't occur in 2018 or 2019. It would have been much simpler then, and there was no need to wait unless there were probate issues.
In 2018, you were dealing with "Refund of Premium". Under those rules, the amount the spouse was entitled to from the RRSP was to be included in his/her income (if not entitled to the whole amount, the remainder would stay on the deceased's final return) with the spouse transferring the amount to own RRSP or RRIF and taking the corresponding deduction.
Because that election was not made, presumably the T4RSP "refund of premium" landed on the final return and taxes were paid It is my understanding that the RRSP is considered to have been cashed out at that time, so am not certain how it could have kept its status until it was converted to a RRIF. Generally, in order for the survivor to get the benefit, it has to be a direct transfer within a certain time frame. However, I have found this citation (from CI Assante Wealth Management).
If the spouse is designated as the beneficiary in the plan document
The position of Canada Revenue Agency (CRA) is that if Terry is the sole beneficiary in the RRSP contract and the full amount of that RRSP is directly transferred to Terry’s RRSP or RRIF (or used to buy an eligible annuity) by December 31st of the year following Pat’s death, then the value of the RRSP would be included in Terry’s tax return for the year of the transfer, not in Pat’s final return. Terry could then claim a corresponding special deduction, so no taxes would be payable.
If the specific criteria of CRA’s position are not met, then Pat’s executors have to include the value of the RRSP in Pat’s final return. However, Pat’s executors could decide to claim a deduction on Pat’s final return up to the RRSP amounts actually paid to Terry. That amount would then be taxable to Terry in the year the payments were made. To reduce the resulting taxes, Terry could make special RRSP/RRIF contributions, provided they are made in the year of a payment from Pat’s RRSP or within the first 60 days of the next calendar year.
Even if the spouse is not designated as the beneficiary, there is still a way to make the transfer (from the same source):
Nonetheless, if Terry is a beneficiary under Pat’s will, an opportunity exists to achieve a tax-deferred transfer of Pat’s RRSP:
- Pat’s executors must file a joint election with Terry designating an amount of Pat’s RRSP to be taxed on Terry’s return for the year the funds were paid to Pat’s estate, rather than on Pat’s final return.
- To get a deduction against the income inclusion stemming from the joint election, Terry could make the special RRSP/RRIF contribution, provided it is made in either the year of the RRSP payment to the estate or the first 60 days of the next calendar year.
However, there seems to be a definite time limit as to when the transfer has to be made to the survivor spouse and when said spouse has to have purchased his/her own RRSP/RRIF. The inference is that the RRSP has indeed been collapsed at date of death and the "refund of premiums" has to happen rather quickly if the tax deferral is to happen.
In your circumstances, I would seek specialist help. You might try the manager of the RRSP but be wary; my experience with those people is that they're really good a promoting RRSPs and not so good and understanding the rules surrounding same.
Hope this helps.
Jo H Ruelle CPB
