I have a client who got divorced during 2018. He agreed to sign over the title to their house, and pay his ex-wife an additional $200,000. She wanted the cash immediately, so he withdrew it from his RRSP. His lawyer is looking into legal precedents whereby he might defer the RRSP income over the next few years (rather than pay tax on the whole amount now). He asked me if there were any tax provisions that might help, and I can’t think of any that could be applied after the fact (other than taxpayer relief).
Likely his best option would have been for the separation agreement to include a provision allowing the direct transfer of RRSP’s using form T2220 for the equalization of assets. Otherwise, if the client withdrew his RRSP’s to help fund the division of assets, the RRSP will be brought into his income in the year of withdrawal. There will be no relief or deferral of the income.
Chances are, the lawyer’s already took into account the tax implications on the pre-tax value of the client’s RRSP’s, and discounted their after tax value when they hammered out the equalization, right?
Presumably… when they divided things up they likely only considered his $200k in RRSP’s to be worth $100k in real money.
