23 August 2006 External T.I. 2006-0199271E5 - transfer of RRSPs in payment of maintenance

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. Can an individual transfer an amount out of an RRSP in satisfaction of arrears in spousal maintenance?

2. Can such a payment be reported as the payment of spousal support?

Position: 1 No. 2. No

Reasons: 1. The provisions of 146(16) do not permit transfers on this basis. 2. transfers of amounts from RRSPs cannot be treated as maintenance payments.

								2006-019927
XXXXXXXXXX 							Wayne Harding
(613) 957-8953
August 23, 2006

Dear XXXXXXXXXX:

Re: Transfer of amounts from a Registered Retirment Savings Plan (RRSP)

This is in response to your facsimile of July 25, 2006, regarding transfers of amounts out of an RRSP in payment of spousal support arrears.

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, 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 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.

Subsection 146(16) of the Income Tax Act (the "Act") permits a direct transfer of an amount from an individual's RRSP (the "payor's" RRSP) to an RRSP of which his spouse or former spouse (the "recipient") is the annuitant, where the payor and the recipient are living separate and apart, the payment or transfer is made under a decree, order or judgement of a competent tribunal, or under a written separation agreement, and the transfer or payment relates to the division of property in settlement of rights arising out of or on the breakdown of marriage.

In our view, the payment of an amount of arrears of spousal support under the terms of a decree, order or judgement of a competent tribunal, or a written separation agreement would not comply with the provisions of paragraph 146(16)(b) of the Act because such a payment would not relate to the division of property in settlement of rights arising out of or on the breakdown of marriage.

During a telephone conversation (XXXXXXXXXX - Carpino) you referred to our files 2002-016116 and 2000-0052205 in which we addressed the transfer of amounts from a payor's RRSP to a recipient's RRSP in circumstances where the payor's obligation to pay maintenance to the recipient were terminated. It should be noted that in both of these letters we indicated that the transfers between the RRSPs had to be made in respect to the division of property in settlement of rights arising out of or on the breakdown of marriage. In other words, the transfers could not specifically be made in settlement of the maintenance obligations.

If a transfer of an amount is made from a payor's RRSP to a recipient's RRSP in satisfaction of maintenance payments, it is our view that the amount of the transfer would be included in the income of the payor under subsection 146(8) of the Act. If the payor and the recipient are not divorced at the time the payment is made, the amount transferred into the recipient's RRSP would be a contribution to a spousal RRSP and may be deductible by the payor in accordance with subsection 146(5.1) of the Act. However, if the amount represents an over contribution to an RRSP, the payor could be subject to a tax under part X.1 of the Act on any excess contribution.

As indicated above, where paragraph 146(16)(b) of the Act is applicable to a transfer of an amount from a payor's RRSP to a recipient's RRSPs, the payment must be in satisfaction of property rights arising from marriage. Payments made by an individual to a former spouse in satisfaction of property rights arising from marriage are of a capital nature and the courts have established that such payments cannot be considered to be "support" for purposes of the Act, which means there is no deduction available pursuant to paragraph 60(b) of the Act.

We trust that these comments will be of assistance.

Yours truly,

Mary Pat Baldwin C.A.

for Director
Financial Sector and exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch