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 a matured RRSP be divided on a marriage breakdown?
Position: Yes
Reasons: It will take two steps, transfer to a RRIF and split the RRIF.
STRATEGY INSTITUTE
1998 Round Table
Question
Paragraph 146(16)(b) of the Income Tax Act (the “Act”) provides for the transfer of property from one person’s RRSP to that person’s former spouse’s RRSP or RRIF where they are living apart as a result of a marriage breakdown. There does not appear to be a similar provision allowing for the division of annuity payments from a matured RRSP as a result of a marriage breakdown. What is Revenue Canada’s position?
Response
Tax-free transfers of RRSP property and RRIF property on marriage breakdown are governed by, respectively, paragraphs 146(16)(b) and 146.3(14)(b) of the Act. We confirm that there is no provision that allows for a direct tax-free division of a matured RRSP as a result of a marriage breakdown. However, the Act does provide for the division of retirement income , on a tax-free basis, as a result of a marriage breakdown from a matured RRSP when two separate steps are undertaken.
The first step is described in paragraph 7 of Interpretation Bulletin IT-528 titled “Transfers of Funds Between Registered Plans”. An annuitant is allowed to commute, in whole or in part, the retirement income under an RRSP in accordance with subparagraph 146(2)(b)(ii) of the Act, bring the amount into income under subsection 146(8) and paragraph 56(1)(h) of the Act, and then transfer the commutation payment to a RRIF and obtain a deduction under paragraph 60(l) of the Act. Consequently, the annuitant’s matured RRSP can be divided into a matured RRSP and RRIF without the annuitant incurring any taxes as a result of the division. The second step which is described in paragraph 8 of IT-528 is to transfer the amount in the annuitant’s RRIF to the annuitant’s former spouse’s RRSP or RRIF in accordance with paragraph 146.3(14)(b) of the Act. Under such a transfer no amount is deemed to be received by the annuitant out of or under the RRIF. Accordingly, the combined effect is a tax-free transfer from a matured RRSP to a former spouse’s RRSP or RRIF.
Prepared by M.P. Sarazin
June 10, 1998
981436
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