Principal Issues: Whether funds can be transferred from a spousal or common-law partner RRSP to a non-spousal or common-law partner RRSP after a marriage breakdown.
Position: Yes, but the non-spousal or non-common-law partner RRSP will become a spousal or common-law partner RRSP.
Reasons: The legislation is clear. However, since the spousal or common-law partner RRSP attribution rules in subsection 146(8.3) do not apply when the taxpayer and his/her spouse or common-law partner are living separate and apart at the time of the withdrawal, we administratively allow certain information on the T4RSP to cease to be reported.
XXXXXXXXXX 2009-031720 A. Townsend July 2, 2009
Dear XXXXXXXXXX :
Subject: Marriage Breakdown and Spousal or Common-Law Partner Registered Retirement Savings Plan
This is in response to your email of April 7, 2009, requesting information on whether you can transfer amounts from a spousal or common-law partner Registered Retirement Savings Plan ("RRSP") to a non-spousal or non-common-law partner RRSP in the case of a marriage breakdown.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. We are, however, prepared to offer the following general comments, which may be of assistance.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
Subsection 146(16) allows, among other things, for the transfer of property from a RRSP before the maturity of the plan to another RRSP under which the transferor is the annuitant. Therefore, where an annuitant under a spousal or common-law partner RRSP is also the annuitant under a non-spousal or non-common-law partner RRSP, the transfer of property between the two RRSPs is allowed under the Act.
A "spousal or common-law partner plan" is defined in subsection 146(1) to mean, among other things, a RRSP that has received a payment out of or a transfer from a RRSP that was a spousal or common-law partner plan in relation to the taxpayer.
Consequently, since a spousal or common-law partner plan includes any RRSP that has received property as a result of a transfer from a spousal or common-law partner plan, any transfer of property from a spousal or common-law partner plan to a non-spousal or non-common-law partner plan will result in the transferee plan becoming a spousal or common-law partner plan for purposes of the Act even if the transfer is done on a marriage breakdown.
Subsection 146(8.3) requires funds withdrawn from a spousal or common-law partner RRSP to be included in the income of the contributor if they are withdrawn in the year the contribution is made, or in the next two calendar years. However, subsection 146(8.3) does not apply when the taxpayer and his/her spouse are living separate and apart at the time of the withdrawal by reason of the breakdown of their marriage or common-law partnership. Even though the attribution rules for RRSPs in subsection 146(8.3) would no longer apply in such a situation, there is no provision in the Act that allows for the conversion of a spousal or common-law partner plan into a non-spousal or non-common-law partner plan.
However, it should be noted that for reporting of amounts ultimately paid out of a spousal or common-law partner plan, in page 9 of the RC4079 Guide, T4RSP and T4RIF Guide, we state that a "NO" could be inserted in box 24 (spousal or common-law partner plan identification box) of the T4RSP and box 36 of the T4RSP could be left blank where at the time of the payment, the spouses were separated and living apart because of the breakdown of their relationship.
We trust these comments are helpful.
Louise J. Roy, CGA
Manager
for Acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch