New RRSP rules spell good news for separating spouses

Federal government’s update to tax law on property division provides access to beneficial program

New RRSP rules spell good news for separating spouses

A January 1, 2020 update to federal tax law governing the division of property in family law matters provides relief for separating spouses as they make a major life decision: purchasing a new residence.

According to Emily Raven, associate lawyer at Clark Wilson LLP, individuals who are separating from their spouse — whether they are common-law partners or officially wedded through marriage — can now qualify to make withdrawals from their RRSP without being hit with a tax penalty, as long as the money goes toward the purchase of a new home.

“The separating spouse can either in the year they separate or in the four years subsequent to separation, access the Home Buyers' Plan (HBP),” Raven said in a recent note. Those who access the plan, she said, will effectively get first-time home buyer benefits.

The change to withdrawal rules can help ease separations, she said, particularly as one or both parties will likely be getting a new residence after they part ways. Under the HBP, funds that are taken out of the RRSP for the sake of buying a home must be repaid over a 15-year period, which starts two years after the initial withdrawal.

“When dividing property in your family law matter, the assumption is that each party has equal entitlement to any funds held in an RRSP in the name of either party,” Raven said.

A separated spouse may withdraw funds from the RRSP to obtain the tax benefits before the determination of marital assets takes place, she said. However, the money taken out must be accounted for correctly in the settlement of family property, along with a proper calculation of the proportionate share of the associated tax benefit.

She noted that the maximum withdrawal amount allowable from an RRSP is $35,000, the entirety of which must go toward a home down payment.


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