REVENUE CANADA TAXATION MEMORANDUM
DATE SEP - 5 1988
TO Assessing and Enquiries Directorate Enquiries and Taxpayer Division
FROM Small Business and General Division
A. Humenuk
957-2135Mrs. P. McNally Director
SUBJECT: Pension Splitting on Separation
We are replying to your memorandum dated July 7, 1988, wherein you requested our views regarding pension splitting pursuant to a separation agreement rather than a court order. In the situation you describe the husband was receiving a retirement pension at the time of separation and agreed to pay his wife 50% of his gross monthly pension to be adjusted in accordance with any increases payable by XXXX. At this time, the XXXX 1983 has not been amended to allow the direct payment to the spouse who was not a member of the pension plan (the "non member spouse"). Although not indicated in the material submitted, we presume that the separation occurred in Ontario subsequent to March 1, 1986.
The entitlement of the non-member spouse to a portion of the pension benefits is based on the applicable provincial statute governing marriage breakdowns even if the matter is settled without arbitration. Effective March 1, 1986, a separation or dissolution of marriage in Ontario is governed by the Family Law Act, 1986 S.O. 1986 c4. This Act allows for an equal split of the net family property, including contingent property such as pension entitlements, as of the date of certain happenings which includes, among other things, the separation of spouses where there is no reasonable prospect that they will resume cohabitation. It is, therefore, our opinion that the non-member spouse would be entitled to an equal share of the pension entitlement with or without the separation agreement and that the tax implications outlined in our memorandum of March 1, 1985 apply to this situation as well.
Specifically, it is our opinion that
(i) The husband would be taxable in respect of his share of the pension benefits as apportioned in the written separation agreement and the amount that represents his spouse's interest in his pension would be included in her income as a pension benefit under subparagraph 56(l)(a)(i) of the Income Tax Act (the "Act"); and
(ii) both spouses would be entitled to claim the pension income deduction under section 110.2 of the Act to the extent permitted thereunder in respect of their relative interests in the pension payments.
It should be noted that in a recent decision, the Ontario Supreme Court (Nix v. Nix) held that unvested employer contributions to a spouse's pension plan, while contingent property, could have no value for the purposes of computing the property split. While this could possibly affect a pension split of unvested contributions, this decision would not appear to affect the present situation as the pension contributions appear to have been fully vested at the time of separation.
We trust these comments will be of assistance to you.
Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch