Transferring an RRSP to an Ex-Spouse Tax-Free in Ontario

When a relationship ends, a retirement savings plan is often one of the largest assets. Splitting it by simply withdrawing cash can trigger tax, so many people want to know whether the money can move to the other person without that cost.

This article explains the general rule for tax-free RRSP transfers after a breakdown, the paperwork it depends on, and related tax rules that sometimes come up. An accountant or lawyer can confirm how it applies to your situation.

The basic rule for a tax-free transfer

On a marriage or common-law breakdown, RRSP property can be transferred tax-free to the spouse's or former spouse's RRSP or RRIF if they are living separate and apart and the transfer is made under a court order, judgment or written separation agreement. This rule comes from section 146(16) of the Income Tax Act.

In plain words, the money moves from one retirement plan into the other person's retirement plan. It is not a cash payment that the recipient then deposits. Your financial institution can explain how it handles a direct transfer.

The conditions you need to meet

• You and the other person are living separate and apart.
• The transfer goes to the spouse's or former spouse's RRSP or RRIF.
• The transfer is made under a court order, judgment or written separation agreement.

Notice that an informal verbal understanding is not on that list. If you are agreeing to split RRSP funds, the agreement should be in writing and should deal with the RRSP clearly. A lawyer can help you word it so the transfer fits the rule.

Documents to gather

The exact forms your financial institution asks for can vary, so ask each institution for its transfer requirements early. In general, expect to need the following.

• A copy of the court order, judgment or signed written separation agreement that authorizes the transfer.
• Account details for the plan the money is leaving and the plan receiving it.
• Proof of who owns each plan, and the type of receiving plan, whether an RRSP or a RRIF.
• Your tax records, so your accountant can report the transfer correctly.

Related tax rules that often come up

Attribution on spousal RRSPs is a separate issue. If the contributor paid into any spousal RRSP in the year of a withdrawal or the two preceding years, the withdrawal may be taxed to the contributor, and Form T2205 is used. That attribution does not apply when the contributor is living separate and apart from the spouse because of marriage breakdown.

Other property follows different rules. Capital property transferred to a spouse or common-law partner, or to a former spouse or partner in settlement of rights arising from the relationship, rolls over at adjusted cost base if both are resident in Canada, and the transferor may elect out in their return. Income attribution also stops while spouses live separate and apart because of breakdown, but attribution of capital gains on a later sale stops only if both file a joint election.

What to do next

• List every RRSP, RRIF and other investment held by each of you.
• Decide, ideally with advice, which assets will move and in which direction.
• Make sure the order, judgment or written separation agreement deals with the RRSP transfer before any funds move.
• Ask each financial institution for its transfer steps and timing.
• Have an accountant review the tax reporting, including any election.

If you disagree about how to divide assets, mediation or collaborative family law may help you reach a written agreement without a trial.

Frequently asked questions