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.
Principal Issues:
1. Is the portion of the pension benefits received from an RPP, by a former spouse of a pension plan member, as a result of marriage breakdown, included in the former spouse's income?
2. Does the same position apply when pension benefits are paid from an unfunded supplemental pension plan?
Position:
1. Yes, under subsection 56(1)(a)(i) of the Act if the relevant provincial law legislation confers title to an undivided interest in each family asset to each spouse as provided in a separation agreement, a divorce decree or court order.
2. Yes, for the same reasons as stated above if the unfunded supplemental pension plan is not an RCA, EBP or SDA.
Reasons:
1. Legal entitlement to the pension income as stated in the CRA's position in paragraph 11 of IT-499R.
2. Same as above.
XXXXXXXXXX 2004-006681
A. St-Amour, CA
April 30, 2004
Dear XXXXXXXXXX:
Re: Pension splitting - Marriage breakdown
This is in response to your letter of March 10, 2004 in which you request our opinion regarding the taxation of pension benefits received by a former spouse as a result of a marriage breakdown.
In your letter, you mentioned that pension benefits from a registered pension plan ("RPP") are paid respectively to a pension plan member and to his former spouse, as a result of a marriage breakdown. You also mentioned that the pension plan member receives pension benefits from an unfunded supplemental pension plan from the same former employer and he is required to remit to his former spouse her share as provided in a written separation agreement. Your are asking if whether or not the pension benefits received by the former spouse are included in the calculation of her income for a taxation year and if subsection 56(4) of the Income Tax Act (the "Act") would be applicable in the circumstances described.
The subject matter of your letter appears to pertain to particular situations. Written confirmation of the tax implications inherent in particular transactions are 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, any inquiries should be addressed to the relevant tax service office. However, we are prepared to provide the following comments that may be of assistance to you. Please note that these comments are general in nature and may not apply in a particular situation.
The Canada Revenue Agency ("CRA") has stated its position regarding the taxation of pension benefits as a result of marriage breakdown in paragraph 11 of Interpretation Bulletin IT-499R Superannuation or Pension Benefits dated January 17, 1992, as follows:
"If there is a division of pension benefits on a marriage breakdown, generally the pension benefits legislation of a province provides the terms under which a portion of the pension benefits of a member of a pension plan may be paid to a spouse or former spouse under a domestic contract, a written separation agreement, or under a divorce decree or court order under a provincial family law act relating to a division of property on the breakdown of the marriage. Upon a division of pension benefits in these circumstances, the portion received by each spouse or former spouse at a time permitted under the pension benefits legislation of the province is included in the income of that spouse or former spouse as a pension benefit under subparagraph 56(1)(a)(i). The above tax treatment applies even if the administrator of the pension plan issues one cheque to the plan member who is required to apportion the payments."
We are of the view that these comments apply to situations where the relevant provincial legislation confers title to an undivided interest in each family asset to each spouse (including a former spouse). As a consequence, if a division of the pension rights occurs, that is, if each spouse has a proprietary interest in the pension benefits and is legally entitled to the pension income, each spouse would be required to include in income for a taxation year their respective share of the pension benefits under subparagraph 56(1)(a)(i) of the Act. As stated above, this position applies whether pension benefits are received by separate cheques to each or by one cheque to the pension plan member. The portion taxable to each spouse represents each spouse's interest in the pension and is usually prescribed by the relevant provincial legislation and provided in the written separation agreement, the divorce decree or court order.
The CRA does not apply subsection 56(4) of the Act to attribute pension plan rights transferred to a spouse upon marriage breakdown, within the limitations provided for in the relevant provincial legislation governing the transferee's entitlement to such rights to the pension plan member.
Where pension benefits are received from an unfunded supplemental pension plan and the plan or arrangement is not an "retirement compensation arrangement" ("RCA"), an "employee benefit plan" ("EBP") or a "salary deferral arrangement" ("SDA") within the meaning given to those terms in subsection 248(1) of the Act, the amounts received would normally represent a superannuation or pension benefit taxable under subparagraph 56(1)(a)(i) of the Act. Therefore, we are of the view that the comments stated in paragraph 11 of IT-499R could apply to superannuation or pension benefits received from an RPP and an unfunded supplemental pension plan.
An unfunded supplemental pension plan is generally an unsecured promise to pay pension benefits by an employer that are supplementary to the benefits provided under an RPP. The determination of whether an unfunded supplemental pension plan would constitute a superannuation or pension plan for purposes of the Act is a question of fact. We would have to review the terms of the particular plan or arrangement to make this determination.
An arrangement that represents an unfunded supplemental pension plan will not generally represent an RCA or an EBP (because it is unfunded) nor will it represent an SDA where the payments to be made under the plan are not in lieu of salary or wages for services rendered or to be rendered by the former employee. Whether or not an arrangement represents an unfunded pension plan that will provide payments that are not in lieu of salary or wages is a question of fact and would require a review of all relevant documentation to make a determination.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R5, the above comments do not constitute an income tax ruling and accordingly are not binding on the CRA.
Yours truly,
for the Director,
Financial Industries Division,
Income Tax Rulings Directorate,
Policy and Planning Branch
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