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: Can survivor benefits under a pension plan be divided between a spouse and a former spouse?
Position: Yes, depending on the circumstances.
Reasons: The division of "survivor benefits" under a pension is not a division of "member benefits" as contemplated under the regulations that apply to registered pension plans. However, the provisions for survivor benefits allow for more than one beneficiary. Accordingly, a pension could simply be modified to allow multiple beneficiaries. In our view a division may also be made if the beneficiary was not changed in the plan and the division is done in accordance with the conditions set out in IT-499. However, a division may not be possible if these conditions are not satisfied.
XXXXXXXXXX
2004-010444
December 15, 2004 W. C. Harding
Dear XXXXXXXXXX:
Re: Pension Plan - Division of Survivor Benefits
This is in reply to your letter of November 18, 2004, concerning the division of survivor benefits to be paid out of a pension plan.
Written confirmation of the tax implications inherent in particular transactions can be provided by this Directorate 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 services 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 are not binding on the Canada Revenue Agency ("CRA"). All publications referred to herein can be accessed on the CRA website at the following address: http://www.cra-arc.gc.ca/formspubs/menu-e.html.
You describe a situation where a member of a pension plan, that provides survivor benefits, and his former spouse obtained a court order dividing the member's pension benefits between the member and the member's former spouse as a consequence of their divorce. You indicate that the order also provides for the division of the survivor benefits payable out of the pension between the member's former spouse and the member's spouse, and that a separate agreement was subsequently entered into between the member, the former spouse and the spouse, to confirm the division of the survivor benefits and to provide that the spouse and former spouse would each be responsible for the taxes on their respective share of the survivor benefits.
While you have not indicated that the plan is a registered pension plan (an "RPP"), we would first note that RPPs are permitted to provide for the payment of various benefits after the death of a member including a number of benefits described as "survivor benefits". In general, these provisions provide for the payment of the benefits to beneficiaries named in the plan documentation and do not restrict the payment to one surviving beneficiary. Accordingly, as a general rule, an RPP can provide for the payment of survivor benefits to both a spouse and a former spouse. However, we understand that in the situation you are considering, only the former spouse was named as the beneficiary of the survivor benefits provided under the plan and that, as a consequence, all of the payments out of the plan will be paid to the former spouse.
With respect to the reporting of the survivor benefits as income, as you have indicated, CRA has stated its position regarding the taxation of pension benefits as a result of a marriage breakdown in Interpretation Bulletin IT-499R, Superannuation or Pension Benefits, dated January 17, 1992. Paragraph 11 of IT-499R provides:
"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."
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). Accordingly, in our view, the above comments will apply to a situation as you have described, to divide the survivor benefits between a spouse and a former spouse of the member of the pension, if such a division of benefits is provided for in the pension benefits legislation or provincial family law act, relating to a division of property on the breakdown of marriage, applicable to the court order and/or to the agreement entered into by the member and the member's spouse and former spouse. However, if the pension benefits are voluntarily transferred by means of a written agreement (either because the provincial law does not provide for such a transfer, or because the parties have opted out of the binding effect of such legislation), the same results cannot be achieved. In this case, the recipient of the survivor benefits paid out of the plan must report the full amount of the benefit.
We trust our comments will be of assistance to you.
Yours truly,
Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch
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