5 August 1993 Internal T.I. 9315037 F - Manitoba Pension Split-George Formula

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.

WINNIPEG DISTRICT OFFICE Personal and General Section Client Assistance

Attention:  R. Kozera

Pension Split - Reduction in Source Deductions

We are replying to your memorandum of May 15, 1993 concerning the reporting of pension income by XXXXXXXXXX

XXXXXXXXXX

Our approach to this problem is based on the premise that the pension is fully taxable in the hands of the member spouse with no deduction for the payment made to the non-member spouse on account of that equalization if it is determined that the pension asset belongs to the member spouse and the member spouse is required to make an equalization payment to ensure an equitable distribution of assets. If, on the other hand, the pension asset is divided between the spouses as required by the provincial legislation in effect at the time of the marriage breakdown, then each spouse has an inherent right to their respective share of the pension and is required to include that share in income if and when received. Thus, if it is determined that XXXXXXXXXX has a right to her share of the pension by reason of the provincial legislation in effect at the time of the marriage breakdown, then the document dated XXXXXXXXXX whereby she agrees to include the amount in her income is superfluous since she would be required to include her share in income by reason of subparagraph 56(1)(a)(i) of the Act.

One must look to the relevant provincial legislation governing the division of pension assets upon the breakdown of marriage and also to the manner in which that division was carried out by the court in order to determine whether the non-member spouse has an inherent right to a portion of the pension. While you did not provide us with the date of marriage breakdown, we have assumed that the relevant date was after December 31, 1982 (the effective date of the Manitoba amendment which recognizes pension as a family asset).

While family assets are generally to be divided equally under the Marital Property Act of Manitoba (MPA), section 17 of the MPA states that the division can be made either by a payment of a lump sum payment, instalments or by the transfer of assets (or a combination thereof).

XXXXXXXXXX

It would appear that the "George formula" resulted from the difficulties in establishing an appropriate value for an unmatured defined benefit pension plan. An argument can be made that the value of a defined benefit pension plan at any point in time is not fixed and is dependent of future pay raises, decreases, etc. (e.g. where the benefit is expressed as a function of the best 5 years). Consequently, in the case of George v George (1983 5 W.W.R. 606), the Manitoba Court of Appeal adopted the formula to overcome the difficulties in establishing a single value for the pension at the time of separation. Under this formula the non-member spouse is granted 1/2 interest in that proportion of the member spouse's pension benefits payable in the future based on the number of months of married cohabitation during which pension contributions were made over the total number of months during which contributions have or will be made.

It is thus our view that XXXXXXXXXX is required to include her share of the pension in her income notwithstanding that the employer's pension plan does not permit the issuance of two separate cheques.

Please note that in the case of the breakdown of a marriage or common law relationship in Manitoba after May 25, 1987, the regulations to the Pension Benefits Act of Manitoba were amended to provide a mandatory equal division of the pension benefit credit which had accrued from the date the marriage or common law relationship began, calculated as if the member spouse's employment had been terminated as of the date of that breakdown. Consequently, where the individuals commenced to live apart after that date, the "George formula" may not be applicable.

P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.      Source Deductions Division c.c.      Client Assistance Directorate c.c.      Assessment of Returns Directorate