Principal Issues: Can subsections 73(1), 146(16) or 146.3(14) apply to transfers of property within the parameters of these provisions under a written separation agreement between common law-partners or former common law-partners considering that common-law partners do not have support or property rights under the Civil Code of Québec?
Position: Yes, these provisions can apply provided all the conditions are met.
Reasons: Rights arising out of a common-law partnership may exist outside of the codified provincial statutes - for instances as a result of a written separation agreement.
Financial Strategies and Financial Instruments Roundtable, 6 October 2017
2017 APFF Conference
Question 1
Transfer of assets between former common-law partners
By virtue of subsection 73(1) and paragraph 73(1.01)(b), there is an automatic rollover on the transfer of property between former spouses or former common-law partners partners [“conjoints de fait” - also translatable as de facto spouses] in settlement of the rights arising from their marriage or their common-law relationship. Similar rules are in place for transfers of registered retirement savings plans ("RRSPs") (subsection 146(16)) and registered retirement income funds ("RRIFs") (subsection 146.3(14).) For the latter two provisions, it is specifically provided in the Income Tax Act that the transfer must be made under a decree, order or judgment of a competent tribunal, or under a written separation agreement.
In Technical Interpretation 2005-0134081E5 (footnote 1), the CRA stated that it was of the view that two common-law partners residing in Quebec may, when their relationship breaks down, avail themselves of the provisions of the paragraph 146(16)(b) to transfer property accumulated in an RRSP pursuant to a written separation agreement that provides for the division of property between the parties in settlement of the rights resulting from the failure of their common-law relationship. One of the conditions that must be met is that which stipulates that the payment or transfer is in settlement of the rights arising from the common-law union or its failure.
However, following the highly publicized decision in Quebec (Attorney General) v. A (footnote 2), also known as the "Éric v. Lola" case, some legal commentators are of the view that the absence of rights resulting from a common-law partnership in Quebec would render it impossible to transfer the rights arising out of, or on the breakdown of, the common-law partnership. On the other hand, it appears that others are more of the view that, in the absence of a legislative framework specific to a common-law partnership, nothing prevents two common-law partners from entering into agreements providing for the consequences of a possible breakdown.
Questions to the CRA
Is the CRA of the view that the rollover rules in subsections 73(1), 146(16) and 146.3(14) can apply in the following cases:
(a) Current or former common-law partners signed, at the time of their separation, a written agreement that provided for the division of their property following the termination of their relationship. They recognized that this was done to settle rights arising from their common-law relationship. No previous agreements had been signed by them.
(b) Current or former common-law partners signed, at the time of their separation, a written agreement that provided for the division of their property following the termination of their relationship. That division was as set out in a union agreement that was signed several years before and dealt with each party’s rights in the event of the breakdown of the common-law partnership.
CRA Response
The Éric v. Lola case concerned the constitutional validity of the legal protection measures recognized under the Civil Code of Québec for married spouses or civil union spouses in matters of support and division of property. The Supreme Court of Canada decided by a majority that the fact that these measures do not apply to common-law partners is not contrary to the Canadian Charter of Rights and Freedoms. The Supreme Court of Canada therefore refused to invalidate the distinction made by C.C.Q. between the legal status of married or civil union spouses on the one hand, and of common-law partners on the other. In this respect, the Supreme Court of Canada's decision did not change the state of the law applicable to common-law partners from what it was at the time of Technical Interpretation 2005-0134081E5 (footnote 3) was issued.
This Technical Interpretation was effectively based on the premise that, although there is no right under the Civil Code of Québec arising out of a common-law partnership, it is not impossible for the annuitant to determine to create rights under a written separation agreement between the annuitant and the annuitant’s common-law partner or former common-law partner relating to the division of property.
The conclusion of the Supreme Court of Canada in the Éric v. Lola case does not change the position of the CRA.
The CRA therefore remains of the view that two common-law partners residing in Québec may, on the breakdown of their partnership, avail themselves of the provisions of paragraph 146(16)(b) to transfer property accumulated in an RRSP under a written separation agreement relating to the division of property between the parties in settlement of rights arising on the breakdown of their common-law partnership. Such an agreement could be concluded at the time of separation, whether or not a common-law union agreement providing for the rights of each in the event of the union's failure had been previously signed.
The same reasoning applies in our view to the rollover rules in subsections 73(1) and 146.3(14).
Finally, and as indicated in Technical Interpretation 2005-0134081E5, the question of whether a particular agreement is a written separation agreement relating to the division of property in settlement of rights arising on the breakdown of a common-law relationship is a question of fact and law which can only be resolved by considering all the relevant facts.
Mélanie Beaulieu
(613) 670-8905
October 6, 2017
2017-070522
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Technical Interpretation 2005-0134081E5, 30 August 2005.
2 [2013] 1 SCR 61, 2013 SCC 5.
3 Id.
4 Id.