Principal Issues: [TaxInterpretations translation] Does subsection 146(16) apply to the transfer of a lump sum from an annuitant's RRSP to a former spouse's RRSP where the purpose of the transfer is to share in RRSPs accumulated during the marriage and to enable the former spouse to provide for the children?
Position: The portion respecting the division of RRSPs may come within the transfer under subsection 146(16), but not the portion relating to the payment of child support.
Reasons: Paragraph 146(16)(b) requires that the payment be made "in settlement of rights arising out of, or on the breakdown of, their marriage or common-law partnership".
2008-030445 XXXXXXXXXX Catherine Ayotte, Notary, M.Fisc April 21, 2009
Dear Madam,
Subject: Transfer between former spouses of property accumulated in an RRSP
This is further to your letter of December 17, 2008 in which you asked for our opinion on the above subject.
Please note that unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
It appears to us that the situation described in your letter could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the Directorate’s practice to comment on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation relates to a specific taxpayer and a completed transaction, you should forward all relevant facts and documents to the appropriate Tax Services Office for its views. We are, however, prepared to provide the following general comments that may be of assistance to you.
The direct transfer of property accumulated in a registered retirement savings plan (RRSP) can occur free of tax under paragraph 146(16)(b) if the property so transferred is derived from an annuitant's RRSP before maturity and is transferred to an RRSP or registered retirement savings fund under which the spouse or common-law partner or former spouse or common-law partner (the "spouse") of the RRSP annuitant is the annuitant. In addition, the annuitant and spouse must be living separate and apart and the transfer must be made pursuant to a decree, order or judgment of a competent tribunal or under a written separation agreement relating to a division of property "in settlement of rights arising out of, or on the breakdown of, their marriage or common-law partnership". This transfer is usually made with a completion of Form T2220: Transfer from an RRSP or RRIF to Another RRSP or RRIF on Breakdown of Marriage or Common-Law Partnership.
We are of the view that the phrase "in settlement of rights arising out of, or on the breakdown of, their marriage or common-law partnership" does not include the payment of an amount in settlement of child support for the purposes of paragraph 146(16)(b). If a written agreement between former spouses provides for the payment of a lump sum to divide "rights arising out of, or on the breakdown of, their marriage or common-law partnership" and to provide for the maintenance of children, then only the portion of the amount relating to "rights arising out of, or on the breakdown of, their marriage or common-law partnership" may be come within the tax treatment under paragraph 146(16)(b).
We hope that our comments are of assistance.
Best regards,
Ghislain Martineau
Manager
Financial Sector and Exempt Entities Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.