RRSP Income and Spousal and Child Support

RRSP Income and Spousal and Child Support.  Is RRSP Income included or excluded from income calculations when deciding spousal and child support? In today’s blog, senior family lawyer at MacLean Law explains the rules related to RRSP Income and Spousal and Child Support. We will answer the key question: Is RRSP income included for support in Canada? Our child support and spousal support lawyers help guide you on this topic.

RRSP Income and Spousal and Child Support 1 877 602 9900

As is the case with many other issues in family law, the determination of whether RRSP income should be included in a payor’s income for purposes of the determination of child support is one that is dependent on the specific facts relating to your case.

Should RRSP contributions be deducted from income before deciding support? Answer:  NO. Should RRSP withdrawals be included as income for child support and spousal support purposes? Answer: MAYBE

An increase in annual income due to an RRSP being cashed in/withdrawn from an RRSP generally affects the payor parent’s child support obligation.  RRSP income is presumed to be included in a payor parent’s income because it is included in the Line 150 income on their income tax return. CRA’s explanatiom on RRSP deregistration can be found here. But when you deduct an RRSP contribution from your taxable income the support guidelines refuse to use for the lower Line 150 income.

So, Is RRSP income included for support in Canada? Let’s find out.

What Is Fair When calculating Guideline Income?

One of the most informative cases on the issue of “Is RRSP income included for support in Canada?” comes from the Manitoba Court of Queen’s Bench, a decision of The Honorable Madam Justice Allan.

In the case of Belot v Connelly, Madam Justice Allan dealt with whether the father’s income should include the withdrawals from his RRSPs.  The Court dealt with this issue in an extensive reasoned decision at paragraphs 56-70 and articulated the law as follows:

• In 2010 the father cashed in just over $20,000 of RRSPS saying he used the funds to contribute to his legal fees in the litigation;
• His employment income was just over $77,000 and this pushed his income to over $98,000.  The $77,000 was consistent with his previous income;
• The court sets out the terms from the Manitoba Child Support Guidelines which is the Provincial legislation.See notes below re the Federal legislation application. The Manitoba Child Support Guideline Regulations at sections 16 & 17 say:

Calculation of annual income

16           A parent’s annual income is determined pursuant to ss 17 and 19 using the same sources of income set out under the heading “Total Income” in the T1 general form issued by the CRA adjusted in accordance with schedule III (which are the allowable adjustments to income which includes union dues, professional dues, CCA etc)

Pattern of income

17           The amount of income from a source of income under section 16 is the amount of income from that source that the court is satisfied that the parent will likely receive in the current year and in determining that annual amount, where the court is of the opinion that the parent’s current income from a source would not provide the fairest determination of the parent’s annual income from that source, the court may have regard to the parent’s income from that source over the last 3 years and determine an amount that is fair and reasonable in light of any pattern of income or fluctuations in income over the previous 3 years.

Vancouver RRSP Income and Spousal and Child Support 1 877 602 9900

The court at paragraphs 58 and 59 says start with line 150 but then consider the impact of s. 17.  If, “the court is of the opinion that the current income from a source would not provide the fairest determination of the parent’s annual income from that source, the court may have regard to the parent’s income from that source over the last 3 years and determine an amount that is fair and reasonable in light of any pattern of income or fluctuations income over the previous 3 years”.

The Court says in order to find some sort of unfairness, the court must consider if there are yearly fluctuations in income, in total or from this particular source *RRSP*, the size of the change in income and why there was a change.  The court will also consider to what use the extra source of income was put.

In that case, the RRSP income was a one time event and was used for legal fees.

The court notes that there is little input from Courts of Appeal on this issue (at that time).  The court considers Ewing v Ewing 2009 ABCA 227 (2009) 457 A.R. 238, [2009] A.J. No. 712 (QL) which analyzes sections 16 and 17(1) of the Federal Child Support Guidelines.  The Court notes this case with caution because:

1. The Federal Child Support Guidelines differ in wording from the Manitoba (Provincial) sections on the same point.  The Federal Guidelines say:

Pattern of Income

17(1)  If the court is of the opinion that the determination of a spouse’s annual income under section 16 would not be the fairest determination  of that income, the court may have regard to the spouse’s income over the last 3 years and determine an amount that is fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurrent amount during those years.  This is relevant to our case given that my recollection is the order falls under the Divorce Act which is federal.

1. The case dealt with an extremely large income fluctuation based on sale of business assets but does have some applicability in the discussion and analysis about income fluctuations.

In Ewing at paragraph 35, the court set out a non-exhaustive list of factors having regard to non-recurring gains and patterns of income.  The Provincial Guidelines speak of “any pattern of income” or “fluctuations in income” and does not utilize the federal concept of “non-recurring amounts”.  

Paragraph 35 of Ewing says:

35           While the courts have the discretion to determine whether the section 16 income calculation is fair, having regard to non-recurring gains and patterns of income, the following, although not an exhaustive list, outlines some of the matters a court might consider:

• Is the non-recurring gain or fluctuation actually in the nature of a bonus or other incentive payment akin to income for work done for that year?

• Is the non-recurring gain a sale of assets that formed the basis of the payor’s income?

• Will the capital generated from a sale provide a source of income for the future?

• Are the non-recurring gains received at an age when they constitute the payor’s retirement fund, or partial retirement fund, such that it may not be fair to consider the whole amount, or any of it, as income for child support purposes?

• Is the payor in the business of buying and selling capital assets year after year such that those amounts, while the sale of capital, are in actuality more in the nature of income?

• Is inclusion of the amount necessary to provide proper child support in all the circumstances?

• Is the increase in income due to the sale of assets which have already been divided between the spouses, so that including them as income might be akin to redistributing what has already been shared?

• Did the non-recurring gain even generate cash, or was it merely the result of a restructuring of capital for tax or other legitimate business reasons?

• Does the inclusion of the amount result in wealth distribution as opposed to property support for the children?

At paragraph 66, Justice Allan says:

“In my view a relevant consideration in this case would be the question as to whether the increase in income is due to the sale of assets which have or have to be accounted for divided between the spouses pursuant to The Family Property Act.  Pursuant to the Act, spouses are entitled to share in one half of the value of the other’s net asset base. Therefore, while the CRA requires that the value of the RRSP be included as income if it is cashed in the asset value is considered property on a family property accounting.”

The Ewing case deals with sales of business asset and not an RRSP but nonetheless the Court finds that this case is instructive.

Justice Allan notes that Hainsworth, in Child Support Guideline Service, provides a useful summary of the cases for and against including RRSP withdrawals as income for child support purposes.

At page 22 of Justice Allan’s decision she summarizes the cases for and against inclusion of RRSP income.  There are a number of cases in which the courts have ignored unusual or non-recurring income receipts.  The courts have disregarded previous isolated RRSP collapses in cases noted in Hainsworth.  By way of example in Kloczko and Kloczko (1999) 87 A.C.W.S. (3d) 112 (Sask QB) the court disregarded RRSP collapses even though the respondent collapsed RRSPS in 2 of the 3 preceding years.  In Bosomworth v Bosomworth (2007) 291 Sask. R. 69 (QB) the court disregarded RRSP collapse needed to pay one of the children’s post secondary expenses.  (Note that an argument may be made that the child benefited from the RRSP funds and therefore it could be unfair to then include the RRSP income for child support purposes.)

Other cases have included it just saying that income is income and that there is nothing in the guidelines expressly permitting exclusion.  

At paragraphs 69 and 70 the Court concludes as follows:

“At the end of the day, I consider 3 factors from the list set out in Ewing.  First, the value of the RRSP had to be shared on the property accounting. Second, it was withdrawn for a purpose that did not benefit or enhance the father’s day to day lifestyle…. Thirdly, there has been no recurrence of this type of income stream.  On the balance I find that the father’s RRSP income was a “one off” event in 2010.  In my view, it is fair to exclude this income as the 2010 RRSP amount does not recur and will not recur.  It is truly an example of fluctuation in income.  I also note the particular facts of this case, where the family property was also at issue and where the funds did not go to the support of the father’s lifestyle.”

Then in 2015, a paper was issued at the Annual Institute of Family Law Conference on Recent Cases on Determination of Income for the Purposes of Assessing Child Support.  The Author was well known and respected in the field of family law, Julien Payne.

In his paper, he notes that RRSPS are not always included as income because the cashing of these investments may represent non-recurring income within section 17(1) of the FCSG and whether that income is included is fact dependent.

He then refers to Justice Allan’s decision in Belot v Connelly and says this is a good case for providing guidance in determining whether the RRSP income should be in or out.  He notes the most notable factors to consider are the frequency of the withdrawals, size of fluctuations in income, reason for fluctuation and the use to which the income was put.  

He then goes through some Court of Appeal cases on the issue including Fraser v Fraser from the Ontario CA who rejected the submission that as the RRSPS had already been equalized in a property settlement that the withdrawals should be excluded from calculation of his income for child support purposes.

He then refers to a British Columbia Court of Appeal decision on the issue of “Is RRSP income included for support in Canada?” – McKenzie v Perestrelo 2014 BCCA 161 where the following observations were made:

1. There is no clear rule about inclusion of RRSP withdrawals – this is left to the discretion of the judge hearing the case (Burzminski v. Burzminski 2010 SKCA 16 at para 11);

2. RRSP income is presumptively part of a spouse’s income fr child support and is not an exemption pursuant to Schedule III of the guidelines.  The spouse seeking the exclusion bears the burden of demonstrating that treating his or her RRSP withdrawal as income would not lead to the fairest determination of income (Fraser v Fraser 2013 ONCA 715 at para 97-99)

3. The fact that the RRSP was equalized in the division of property between the spouses does not mean that RRSP withdrawals will be excluded from income for child support purposes (see Fraser v Fraser 2013 ONCA at para 102 (adopting Aitken J’s reasoning in Stevens v. Boulerice [1999] O.J. No. 1568)

4. There is a general rule that “income generated from marital property which has already been divided should not be brought into income for purposes of determining the amount of support payable to a payee spouse” (Brown v Brown, 2012 NBCA 11 at para 15) – [that indicates that regard must be had to whether spousal or child support is at issue]

5. Where RRSP withdrawals are regular and a spouse’s only source of income they are more likely to be included as income for the purpose of determining support (Edgar v Edgar, 2012 ONCA 646);

6. On the other hand there is no presumption that “non-recurring withdrawals from RRSPs should automatically be excluded from income for child support purposes”:  Fraser v Fraser, 2013 ONCA 715 at para 105;

7. Where a spouse has contributed to an RRSP and withdrawn that amount in the same year, it may be unfair to include both the contribution and withdrawal in the Guideline income;

8. The court will consider the reason for the withdrawal.  For instance RRSP withdrawals have not been included as income where:

1. The amount has already been accounted for in the division of assets and or was used to fund legal fees;

2. The amount has been used to repay a debt incurred by the other spouse in joint names.

Ultimately it is clear from the caselaw that there is a presumption that RRSP withdrawals should be included in income for purposes of calculating child support and, depending on the decision with respect to the division of this asset, in the calculation of spousal support.  This presumption however can be rebutted by an array of circumstances.

Kelowna RRSP Income and Spousal and Child Support

In McKenzie (BCCA) the court observed that the RRSP withdrawals were no-recurring, and were used to pay legal expenses and also having considered that the RRSP withdrawals did not represent the respondent’s only income in that year, the British Columbia Court of Appeal upheld the trial judge’s exercise of discretion under s.17 of the Guidelines to exclude the RRSP withdrawals from the respondent’s income for purposes of calculating both child and spousal support.

The court in Newfoundland addressed the issue of whether: Is RRSP income included for support in Canada? in Kelland v Stanley 2013 NLTD (F) 40 stated:

1. The propriety of including RRSP withdrawals as income for child support calculation purposes is fact dependent (Dillon v Dillon, 2005 NSCA 166 [2005] N.S.J. No. 548);
2. Generally, when RRSPs are deemed non-recurring they are excluded from annual income calculations for child support purposes (Leet v. Beach, 2010 NSSC 433, 95 R.F.L. (6^th) 407);
3. RRSP withdrawals, especially if they are recurring, may, however be included in income if fair and reasonable in the judge’s discretion (Steeves v English, 2004 ABCA 195, 6 R.F.L. (6^th) 125).

Toronto RRSP Income and Support

Finally in Fraser v Fraser a 2013 Ontario Court of Appeal decision found that income from RRSPs should be presumptively included in the payor’s income, but added that the same decision stated courts can depart from this in the event that it would not be the fairest determination of income.

RRSPs and Child Support/Spousal Support 

At the end of the day, the authority of a court to exclude RRSP withdrawals from income for child support purposes pursuant to s17 of the  Guidelines as stated in Belot, Kelland, Dillon is fact dependent and in the end result determined based on fairness.

So, the answer to the question: Is RRSP income included for support in Canada, is that it depends. To see how RRSP’s are treated in BC family property division read this.