The taxpayer in Charrier v. Quebec (2010 EXP-2783) contributed $5,970 to his spouse's RRSP in 2005, which he deducted, and a year later the amount was withdrawn. The financial institution made the applicable source deductions and remitted the balance to the taxpayer's spouse. Later in the year, the spouses separated. Under the s. 146(8.3) attribution rule, the taxpayer was taxed on the amount of the withdrawal because they were not living separate and apart at the time of withdrawal. However, it was for his ex-spouse that the taxes were withheld at source. The Court of Quebec ruled in favor of the contributor in a decision animated more by considerations of fairness than by an analysis of the legislative provisions.
Does the tax treatment indicated above of withholding tax reflect the federal tax provisions? CRA responded:
[S]ubsection 146(8.3) specifies that where a withdrawal is made from an RRSP for the benefit of a spouse or common-law partner, where the spouses or common-law partners were not living separate and apart by reason of the breakdown of the marriage or common-law partnership, the taxpayer who has paid premiums to the taxpayer’s spouse's or common-law partner's RRSP will be required to include the amount withheld in computing the taxpayer’s income up to the amount the taxpayer contributed in the year or in one of the two preceding years. Where subsection 146(8.3) applies, subsection 146(8.6) allows the annuitant to claim a corresponding deduction so that two people do not have to include the same amount in computing their income. ...
[T]he deductions [under s. 153(1)(j)] are … made from the lump sum payment and designated as being for the account of the person receiving the amount, being the RRSP annuitant. No provision of the Act provides a link between the withholding tax on the payment to the annuitant and the attribution rule in subsection 146(8.3).