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: Is share of ex-husband's retirement taxable to the ex-wife when she is entitled to receive half of the benefits as a result of the equalization of family assets upon divorce?
Position: If ex-wife has a proprietary interest in the pension benefits and is legally entitled to the pension income, the pension benefit will be included in her income under subparagraph 56(1)(a)(i).
Reasons: Legal entitlement to the pension income as stated in paragraph 11 of Interpretation Bulletin IT-499R.
Andrea Boyle, CGA
November 20, 2009
Dear XXXXXXXXXX :
Re: Taxability of Retirement Fund
This is in reply to your letter of July 4, 2009 regarding the taxability of your share of your ex-husband's retirement fund which you are entitled to as part of the equalization of assets upon your divorce. You have indicated that you are receiving a monthly benefit from XXXXXXXXXX .
The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. 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, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended ("Act").
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).
Therefore, 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.
Our response to your letter is general. In the situation submitted in the letter, we cannot provide a definitive answer as to whether the pension payments you are receiving are taxable because we do not know all the facts. Because the particular transaction is completed, if you require further assistance, an opinion would be provided by your tax services office. They would need information such as: a description or excerpts of the pension law governing the specific registered pension plan and the ability of the pension plan administrators to split pension income between a member and the member's former spouse; the written separation/divorce agreement which specified the agreed-upon division of property between the spouses; and the relevant section of the provincial law applicable in this case to determine the individual spouses' interests in the family assets.
We trust that these comments will be of assistance.
Louise J. Roy
for Acting Director
Ontario Corporate Tax
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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