Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Can a taxpayer deduct the portion of his retiring allowance he paid to his ex-wife pursuant to a court order arising as a result of the breakdown of their marriage?
Position: No deduction per se.
Reasons:
A payment in settlement of property rights arising from marriage breakdown is of a capital nature and is not deductible. Further, there is no provision in the Act to transfer part of a retiring allowance to the RRSP of a spouse or former spouse and therefore no corresponding deduction.
The individual could transfer as much of the RA as possible to his RRSP, take the deduction, and then effect a 146(16) transfer to the former spouse's RRSP.
XXXXXXXXXX 2003-001606
Renée Shields
(613) 948-5273
July 8, 2003
Dear XXXXXXXXXX:
Re: Request for a Technical Interpretation - Retiring Allowance
This is in response to your letter of April 14, 2003 regarding deductions available to an individual (the "Taxpayer") who must split his retiring allowance entitlement with his former spouse pursuant to a court order in settlement of their property rights arising from marriage breakdown.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only and are not binding on the Canada Customs and Revenue Agency ("CCRA"). All publications referred to herein can be accessed on the CCRA website at the following address: http://www.ccra-adrc.gc.ca/tax/technical/incometax/menu-e.html.
The CCRA's general views regarding retiring allowances are contained in Interpretation Bulletin IT-337R3, "Retiring Allowances." The term "retiring allowance" is defined in subsection 248(1) of the Income Tax Act (the "Act"). Whether an amount paid to an individual is a retiring allowance is a question of fact. For purposes of this discussion, we will assume that the amount paid to the Taxpayer qualifies as a retiring allowance.
Payments made by an individual to a former spouse in satisfaction of property rights arising from marriage are of a capital nature. The courts have established that such payments cannot be considered to be "support" for purposes of the Act, which means that there is no deduction available to the individual pursuant to paragraph 60(b) of the Act.
A retiring allowance received by an individual, including any portion of the amount transferred to a spouse or former spouse whether directly or indirectly, must be included in the individual's income for the year by virtue of subparagraph 56(1)(a)(ii) of the Act. However, pursuant to paragraph 60(j.1) of the Act, an individual may claim a deduction for the amount of a retiring allowance transferred in the year of receipt or within 60 days after the year to a registered retirement savings plan ("RRSP") of which he is the annuitant. The amount of the deduction is subject to certain limitations, which are discussed at length in paragraphs 12 and 13 of IT-337R3. We note that paragraph 60(j.1) of the Act does not provide a deduction for the transfer of a retiring allowance to the RRSP of one's spouse or former spouse.
Where a retiring allowance is transferred to an individual's RRSP, subsection 146(16) of the Act permits a direct transfer of an amount from the individual's RRSP to the RRSP of which his spouse or former spouse is the annuitant where the transfer relates to the division of property in settlement of rights arising on breakdown of marriage. We can refer you to Advance Income Tax Ruling ATR-31, which describes how a similar situation was handled.
We trust that these comments will be of assistance.
Yours truly,
Mickey Sarazin, C.A.
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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