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.
May 17, 1993
HEAD OFFICE |
EDMONTON |
Personal and General Enquiries and |
DISTRICT OFFICE |
Office Examination Section |
Taxpayer Requests |
|
A. Humenuk |
|
(613) 957-2134 |
Attention: Bryant Town
Pension Splitting on the Breakdown of Marriage
We are replying to your memorandum of April 15, 1993 concerning the reporting of the pension income received by XXXXXXXXXX Reference is also made to our telephone conversations of April 26 and May 11, 1993 (Town/Humenuk).
XXXXXXXXXX
XXXXXXXXXX
You ask whether it is permissable for XXXXXXXXXX to report less than the full pension prior to the signing of the written agreement or the issuance of the Divorce Judgement. In addition, you ask whether the written agreement has the effect of dividing the pension asset or whether the division of the asset only takes place upon issuance of a Court Order.
The right to receive pension income is not generally transferable or assignable except as specifically provided for by various forms of provincial legislation in respect of the breakdown of a marriage. For example, section 43 of the Family Relations Act of British Columbia deems each spouse to be entitled to an undivided half interest in each family asset upon the occurrence of an order, judgement or separation agreement made in respect of the breakdown of marriage. Where one spouse becomes entitled to an interest in the other spouse's pension by reason of this law or a similar law, it is our position that each spouse reports his or her respective share of the pension on pension splitting. The rationale behind this position is that each spouse is entitled to their respective share of the pension asset by the operation of that law and not by means of a voluntary or negotiated transfer of property.
Where the pension asset is voluntarily transferred by means of a written agreement (either because the provincial law does not provide for such a transfer or because the spouses have opted out of the binding effect of such legislation), the same results are not achieved. Where the transfer of the pension asset takes place at the direction or with the concurrence of the member spouse, subsection 56(2) of the Act will apply to ensure that the member spouse reports the full amount of the pension.
The division of assets upon the breakdown of marriage in Alberta is governed by the Matrimonial Property Act, R.S.A. 1980 (MPA). Under section 7 of the MPA, the Court may make a distribution of property between the spouses that is just and equitable. Section 60 of the Employment Pensions Act of Alberta (EPA) makes it clear that the pension rights of a member spouse are subject to any Court order made in Alberta or any other jurisdiction for the division of matrimonial property. Consequently, where an Alberta court orders the pension asset to be divided between the spouses in accordance with section 7 of the MPA, it is our view that each spouse reports their respective share of the pension income received pursuant to that order. Such a split in the reporting of the income could not be done retroactively since the right to the pension is only transferred upon the issuance of that matrimonial property court order.
However, the MPA also contains a provision which permits the spouses to opt out of the binding effect of section 7 of the MPA and make an enforceable written agreement with respect to the division of any property which is held by one or both of them. In this case, the non- member spouse forfeits any rights that would otherwise have been established by Part I of the MPA and agrees to an equitable distribution of assets as agreed to by the parties. While the parties may agree to the same distribution which would have been ordered by the Court, the distinguishing feature for tax purposes is that the member spouse concurs to the division of the assets and that subsection 56(2) of the Act will apply to ensure that the member spouse includes the amount of transferred pension in income.
The XXXXXXXXXX written agreement between XXXXXXXXXX clearly states that the parties intend to divide the matrimonial assets by themselves and that Part I of the MPA is not to apply to their matrimonial property. Since the parties opted out of the rights which would otherwise be established by Part I of the MPA, it is our view that the full amount of pension income received from 1988-1991 should be reported by XXXXXXXXXX and that he should continue to do so for 1992 and subsequent taxation years.
You advised thatXXXXXXXXXX will be entitled to a deduction for maintenance payments made during the period 1988 - 1991 based on the written separation agreement you received from his former spouse. As we have not reviewed this document, we can offer no assistance on any issues that might arise out of such an agreement.
P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993