Transitional Rules for the RRSP/RRIF Rollover to an RDSP

RRSP rollover provisions now permit a parent or grandparent on death to “rollover” funds in an RRSP or RRIF to an eligible child or grandchild’s RDSP tax-free (from Federal Government Budget 2010:  Read more…).    For parents and grandparents who passed away in 2008, 2009, or 2010, there are special transitional rules intended to recognize the above rollover provisions. The transitional rules apply to situations where the deceased parents or grandparents may not have provided for an RDSP contribution for an eligible individual prior to the introduction of the new rules, but made a bequest directly to the RDSP beneficiary, to a spouse or common-law partner or another beneficiary.

The transitional rules address two situations.  RDSP beneficiaries in receipt of such funds may transfer them to their own RDSPs and other recipients of funds may make a contribution to the RDSP of an eligible individual.

A taxpayer may claim a deduction that does not exceed the “transitional eligible proceeds”, provided specific conditions are met.

The “transitional eligible proceeds” are amounts received by a taxpayer as a result of the death of an RRSP/RRIF annuitant or RPP member, where the death occurred in 2008, 2009, or 2010, and subsequently transferred into the RDSP of a qualified beneficiary (financially dependent child or grandchild of the deceased).  “Transitional eligible proceeds” may also include an amount that has been rolled over to a spouse’s RRSP or RRIF and which is subsequently transferred to the RDSP of a qualified beneficiary.

The specific conditions which must be met are as follows:

• The death of the original annuitant or RPP member must have occurred after 2007 and before 2011
• The annuitant must have been the parent or grandparent of the RDSP beneficiary
• The “transitional eligible proceeds” must have been included as the income of a taxpayer
• The “transitional eligible proceeds” must have been received by a child or grandchild of the deceased, a spouse or common-law partner of the deceased, another beneficiary of the estate or a designated beneficiary.