Ms. O’Callaghan was her brother’s designated beneficiary under his RSP. She got about $273,000 from his RSP on his death. As a result of the RSP benefit under ITA subsection 146(8.8), the estate owed about $98,000 of federal and provincial tax.
To pay for the tax liability, Ms. O’Callaghan gave the executor (who was also her brother) $135,000. But the executor only paid to CRA about $39,000 of the $98,000 debt, leaving about $58,000 still owing. CRA assessed Ms. O’Callaghan for the $58,000 relying on ITA s. 160.2.
Ms. O’Callaghan lost.
This decision shows that a designated beneficiary under an RSP should not simply give an amount to the executor of the estate, trusting that executor to pay the tax owing on the RSP income. The designated beneficiary should make sure that whatever money she pays goes directly to CRA, without relying on the executor’s discretion.
Although Ms. Callaghan paid the executor the $135,000 about 8 months before he was formally appointed legal representative of the estate, it seems unsafe to rely on that distinction. Even if the payment had been made to the executor at a time when he was appointed and in that capacity, only a payment to the Receiver General for the tax could definitively protect the designated beneficiary. (See paragraph 27.)