T2220: move RRSP or RRIF funds to an ex tax free, if done directly

What has to be true before the issuer can move the money?

Section 146(16)(b) of the Income Tax Act lets an unmatured RRSP transfer property to a plan of the annuitant's spouse or former spouse when they are living separate and apart and the transfer is made under a decree, order or judgment of a competent tribunal, or a written separation agreement, relating to a division of property on the breakdown of the marriage or common law partnership laws-lois.justice.gc.ca. Section 146.3(14) gives a RRIF the same route laws-lois.justice.gc.ca.

Guide T4040 sets out the direct transfer rule, the age 71 limit for transfers into an RRSP and the living apart condition canada.ca. The form itself says a transfer outside a court order or written agreement can leave both spouses with tax owing, and that you use one form for each plan canada.ca.

Who fills out each section of Form T2220?

Four parties touch the form: your client as annuitant, the issuer sending the money, the issuer receiving it and the spouse canada.ca. The current version is T2220 E (25).

Attach the court order or separation agreement only if you can't get the spouse's signature. Your client doesn't have to show the document's contents to the issuer but must make it available to the transferor, in a sealed envelope if they want. Nobody sends the form to the CRA unless the CRA asks for it canada.ca. The CRA also says the form isn't mandatory: the institution can record the transfer on other documents, but it must give your client confirmation of the details canada.ca.

What does a $90,000 T2220 transfer save against a cash withdrawal?

Dana holds a $240,000 RRSP and lives in Ontario. The written separation agreement gives Lee $90,000 of it. Compare the two ways the money can reach Lee.

The withholding comes from the CRA's rates for RRSP withdrawals by residents of Canada: 10% up to $5,000, 20% over $5,000 up to $15,000 and 30% over $15,000, with lower federal rates in Quebec canada.ca. The 30% is only a prepayment. Dana's real tax on the $90,000 is set at her marginal rate when she files, so the cash route can cost far more than the $27,000 withheld. See lump sum withholding rates for how the rate is chosen.

How the transfer is reported, and why it uses no RRSP room

Section 146(16) says the transfer isn't income to either spouse just because it was made, no one can deduct it, and it is deemed not to be a premium paid to the receiving plan laws-lois.justice.gc.ca. The receiving issuer gives no receipt, because the amount can't be deducted canada.ca. It doesn't eat into Lee's room either: section 204.2(1.2) leaves amounts transferred under 146(16) out of the undeducted premiums that count toward an RRSP overcontribution laws-lois.justice.gc.ca.

The sending issuer still reports it. For an unmatured RRSP your client gets a T4RSP with the amount in box 35, and you neither report the income nor claim a deduction on the return canada.ca. A RRIF transfer goes in box 35 of the T4RIF, the box for transfers on a marriage or common law relationship breakdown canada.ca. An SPP lump sum is reported on a T4A to the transferor, and in every case the payer withholds no tax canada.ca.

From the transfer date the money belongs to the recipient. Anything Lee later withdraws is taxed to Lee, at Lee's rate.

Why spousal RRSP attribution stops on separation

The three year attribution rule in section 146(8.3) applies only if the contributor is not living separate and apart from the spouse because of the breakdown at the time of the withdrawal laws-lois.justice.gc.ca. Section 146.3(5.1) has the same condition for spousal RRIFs laws-lois.justice.gc.ca. Where the exception applies, the annuitant reports the whole payment canada.ca.

So once the couple lives apart because of the breakdown, a spouse who withdraws from a spousal RRSP your client funded last year is taxed on it alone. The test is the date the money comes out: a withdrawal made before they separated is still attributed under the normal rule. The full mechanics are on the spousal RRSP three year rule page.

"Separated" needs care for common law couples. The form defines a common law partner as someone you've lived with in a conjugal relationship for at least 12 continuous months, counting a separation of less than 90 days because of a breakdown as part of those months, or who meets one of the child based tests, such as being the parent of your child canada.ca. See common law partner rules for the rest of the test.

Which form covers RRIFs, pensions and FHSAs?

T2220 handles more than RRSPs, but registered pension plans and FHSAs have their own forms canada.ca.

The FHSA form is RC723, Transfer from an FHSA to another FHSA, RRSP or RRIF on Breakdown of Marriage or Common law Partnership canada.ca. For the account itself, see FHSA rules.

A RRIF transfer is kept out of both incomes by section 146.3(14.2) laws-lois.justice.gc.ca. The annuitant's minimum for the year is still set on the fund's January 1 value, so check with the carrier how the rest of this year's minimum gets paid before most of the fund moves out. The factors are on the RRIF minimum withdrawal table. And because the Act ties the rollover to a division of property, RRSP money used to pay spousal support doesn't qualify: that is a taxable withdrawal, and the support side follows the spousal support deduction rules.