4 June 1997 External T.I. 9704695 - DIVISION OF PENSION BENEFITS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Can pension benefits be divided between spouses where a marriage breakdown has not occured?

Position:

This would not be possible under Income Tax legislation alone but may be possible if provincial legislation permits it.

Reasons:

Provisions of the pension regulations incorporate certain provincial laws as allowable terms of a plan but we have not identified any provincial laws that permit a division as requested to date. XXXXXXXXXX

XXXXXXXXXX 970469

Attention: XXXXXXXXXX

June 4, 1997

Dear Sirs:

Re: Payment of benefits out of a Registered Pension Plan ("RPP")

This is in reply to your letter of February 13, 1997 in which you requested clarification of the provisions of the Income Tax Act (the "Act") that may be applicable to certain payments of benefits out of an RPP to the spouse of a member of the plan in accordance with the provisions of the Matrimonial Properties Act (Saskatchewan) (the "MPA").

In particular you are concerned about the consequences where a member of a plan obtains a ruling under the MPA to have all or a portion of the member's benefits paid to the member's spouse in a situation where no matrimonial breakdown has occurred.

Subparagraph 147.1(2)(a)(ii) of the Act provides that a pension plan may not be registered unless it meets certain prescribed conditions. In addition, subsections 147.1(11), (12) and (13) provide that a plan registration may be revoked in certain situations. In particular, a plan's registration may be revoked if:

-the plan does not comply with the prescribed conditions for its registration;

-the plan is not administered in accordance with the terms of the plan as registered;

-it becomes a revocable plan in accordance with subsection 8501(2) of the Income Tax Regulations (the "Regulations"); or

-the plan is not administered in accordance with its terms (as specified under subsection 147.1(7).

In respect to these conditions, subsection 147.1(15) provides that the term "as registered" generally means the terms of the plan as initially registered plus any amendments to the plan and any terms that are not contained in the documents constituting the plan but are terms of the plan by reason of the Pension Benefits Standards Act, 1985 ("PBSA") or a similar law of a province. In consequence, if the PBSA or a similar law of Saskatchewan provides for the payment of benefits out of an RPP that are required under the MPA, the provision of the benefits would not of themselves, result in the revocation of the plan's registration.

Part LXXXV of the Regulations specifies the prescribed terms for RPPs and paragraph 8502(c) thereof provides the basic rules governing benefits that may be provided. In particular, paragraph 8502(c) requires that a plan does not and can not provide any benefits except benefits:

-that are provided under defined benefit provisions and are in accordance with Regulation subsection 8503(2), paragraphs 8503(3)(c) and (e) to (i) and section 8504;

-that are provided under money purchase provisions and are in accordance with Regulation subsection 8506(1);

-that the plan is required to provided (or in certain cases would be required to be provided) by reason of subsection 21(2) of the PBSA or a provincial law similar to that subsection; or

-that the plan is required to provide to a spouse or former spouse of a member by reason of the provisions of a law of Canada or a province applicable in respect of the division of property between a member and the spouse or former spouse, on or after the breakdown of their marriage or other conjugal relationship, in settlement of rights arising out of that marriage or relationship.

Accordingly, if a division of benefits, as described, is not permitted by a provincial law, as noted previously, it would have to be acceptable under one of the above noted provisions. However, none of these provisions will accommodate the payments being considered in your situation.

It should also be noted that paragraph 8502(f) of the Regulations applies to all plans to prevent rights of a person from being assigned, charged anticipated, given as security, or surrendered with the exception that an assignment does not include an assignment resulting from a marriage breakdown or an assignment on the distribution of property from a deceased's estate, and a surrender does not include a reduction of benefits to avoid revocation of the registration of a plan.

We trust these comments will be of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch