By Gigi Suhanic
National Post
FP Money
Saturday September 27, 2003

Question: My husband and I are divorcing and dividing the assets we have accumulated over the years. However, we have run into a brick wall with regard to his RRSPs. When my husband phoned to transfer 50% of the RRSPs into my name, the bank said it couldn't because the account was locked in.

I'm sure couples who are not divorcing can transfer RRSPs to each other. Do we have to go to a lawyer to split the RRSPs?

Answer: RRSP funds can't be moved around on a whim, says Tina Di Vito in Toronto.

"You can never go back and say, 'I'm 60 years old, I've made contributions to my own plan, plus I've got a pension at work. My spouse who hasn't been working doesn't have anything, so we want to split it.' At this point it's way too late. You cannot move money from your RRSP into your spouse's RRSP," Ms. Di Vito says.

Divorce and death are the only events that allow a transfer of RRSP funds from one person to another. In the case of divorce, Canada Customs and Revenue Agency (CCRA) allows a tax-free transfer, as long as there is a court order or a written separation agreement covering the couple's RRSPs. The fact that your husband's account is locked in -- which means it's pension money -- doesn't change this.

"It's hard to say why the financial institution could have answered that way," says Ms. Di Vito.

David Salloum in Edmonton says it's possible the RRSP holds a kind of bank-specific product, like a five-year locked in or non-cashable GIC that's only in its second year and can't be split.

First, you need to establish whether the RRSP is a locked-in pension plan or some other kind of investment. If you determine the RRSP is a pension plan, then as long as you have the appropriate documents you don't need a lawyer to get the ball rolling on the transfer, says Ms. Di Vito. CCRA has a form specifically for RRSPs and divorce -- Form T2220 -- that your financial institution should be able to provide. You and your husband need to sign it, swearing that you are living "separate and apart" and that your marriage is ending.

Ms. Di Vito and Mr. Salloum have a few additional cautionary notes about locked-in accounts:

• If you complete the transfer, you can't mix that money with your other RRSPs. The funds have to go from one locked-in account to another.
• Pension funds are creatures of provincial legislation. Mr. Salloum advises you to check with your provincial pension commission about locked-in plans to see whether there's some rules specific to the province.
• You should also make sure the bank sends you a T4RSP slip for tax purposes. The transfer will show up in box 35.

Question: I have a son who turned 18 in May. His income in 2002 was $330 from part-time employment -- the first earned income in his life. Because of the smallness of the amount, we didn't bother to submit a tax return for that year.

When he submits his return next year (for 2003), will the RRSP contribution room shown on that return be only for that year's earned income? Does the fact that he didn't submit a return for 2002 mean he won't be able to use his 2002 income for RRSP purposes? In other words, do you have to submit a tax return to be able to contribute to an RRSP?

Answer: Your son can't include his part-time earnings from 2002 in his 2003 tax return, says Ryan Beebe in Edmonton.

If he wants to report the $330 to create more RRSP contribution room, he can file a separate return for 2002. He won't get in trouble with Canada and Customs Revenue Agency for filing late for 2002. "There's no danger to him because there are no tax consequences since he'll owe no tax," says Mr. Beebe.

For 2002 and 2003, his RRSP contribution room would be calculated based on 18% of his earned income in each respective previous year.

Of course, setting up an RRSP and contributing to it is not contingent on filing a tax return.

"However, if you don't file a tax return, you don't create contribution room," says Adrian Mastracci of KCM Wealth Management in Vancouver, “Without contribution room, it's not possible to take any deductions.”

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.