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Old 09-08-2017, 12:09 PM   #1
81MC
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Hey, asking here because there seems to be a reasonable amount of people who are educated in law/finance here.

Ex and I have $xxxxx in RRSPs. Most of it in her name, some in a spousal RRSP in mine (but contributed technically through her). We're very amicable and have agreed to how that amount is to be split (50/50). We have a signed agreement to that effect.

Federal form T2220 for marital breakdown stipulates funds cannot be contributed for year of separation, plus two preceding years. Doesn't work so well as we both may be looking at using respective RRSP value for down payments before then.

Only alternative I can see is withdrawing X amount, splitting the 'cost' of withholding tax, and trying to calculate the hit she would take come tax time and paying out half of that. Anyone know for sure if the Withholding tax % applies to what would be taxed as income, or if the full amount would be taxed at her nominal interest rate regardless of whats withheld?

I hate the idea of potentially losing 30%+ to get this sorted out, since we both fully agree and I have no concern about any future legal matters or other stupidity. But I also really don't want to wait 2+ years to finalize the final aspect of our separation, let alone not have the autonomy of funds.

Thank you for any input or advice. Online otherwise seems to end at the t2220 timeline stipulation.
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Old 09-08-2017, 12:39 PM   #2
Slava
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The withholding tax applies to the withdrawal and is based on the total withdrawals. It is 10% withheld up to $5000, 20% between $5000 and $15000 and 30% above $15000.

Just a word of warning; you can't want say $15k in withdrawals and figure that you will just withdraw $5k three times to avoid the withholding tax. They will treat those as cumulative and withhold greater amounts to make sure that you are having the correct amount withheld.

I think that is the question you're asking, but if I missed the point here, just let me know.
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Old 09-08-2017, 12:59 PM   #3
Cecil Terwilliger
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Quote:
Anyone know for sure if the Withholding tax % applies to what would be taxed as income, or if the full amount would be taxed at her nominal interest rate regardless of whats withheld?
I'm a little unclear exactly what you're asking with the wording of your questions but I'm gonna try an answer. I think you're asking if she'll pay income tax and withholding tax twice. The answer would be no. If she's already paid withholding tax, but it wasn't enough to cover her total income taxes owed, then she could owe more but won't pay twice on the same earnings, she'll just pay the difference not covered by the withholding tax.

Last edited by Cecil Terwilliger; 09-08-2017 at 01:01 PM.
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Old 09-08-2017, 01:48 PM   #4
81MC
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^that's pretty well what I'm wondering.
Say withholding tax is 30% of $20 000
Nominal tax rate let's say 35%.
Could we, with reasonable accuracy:
figure 35% of $20 000 is $7000.
30% Withholding of $20 000 is $6000.
Come income tax time, anticipate an additional $1000 in tax owing (difference between tax rate and amount withheld)?
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Old 09-08-2017, 01:52 PM   #5
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Why can't you just open new, separate RRSP accounts and transfer the amount you want to transfer to each of those accounts, then you won't lose a dime? Or are you wanting the cash? Then you do have to pay the withholding tax as mentioned above.
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Old 09-08-2017, 02:10 PM   #6
Cecil Terwilliger
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I believe you are correct. She'd only be on the hook for the extra $1k come tax time.
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Old 09-08-2017, 03:45 PM   #7
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Just divorced myself.

My ex opened a new RRSP account in her name and I transferred her half over. We bank at the same place so it was handled by them. I never payed the withholding tax because it was a marriage breakdown. I haven't touched it since but my ex can take her amount if she wants and pay her own withholding tax.
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Old 09-08-2017, 03:47 PM   #8
Cecil Terwilliger
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And depending on when you need the money for that down payment and your current status as a homeowner, you may be eligible for a homebuyer plan withdrawal.
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Old 09-08-2017, 08:23 PM   #9
Enoch Root
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Quote:
Originally Posted by 81MC View Post
Hey, asking here because there seems to be a reasonable amount of people who are educated in law/finance here.

Ex and I have $xxxxx in RRSPs. Most of it in her name, some in a spousal RRSP in mine (but contributed technically through her). We're very amicable and have agreed to how that amount is to be split (50/50). We have a signed agreement to that effect.

Federal form T2220 for marital breakdown stipulates funds cannot be contributed for year of separation, plus two preceding years. Doesn't work so well as we both may be looking at using respective RRSP value for down payments before then.

Only alternative I can see is withdrawing X amount, splitting the 'cost' of withholding tax, and trying to calculate the hit she would take come tax time and paying out half of that. Anyone know for sure if the Withholding tax % applies to what would be taxed as income, or if the full amount would be taxed at her nominal interest rate regardless of whats withheld?

I hate the idea of potentially losing 30%+ to get this sorted out, since we both fully agree and I have no concern about any future legal matters or other stupidity. But I also really don't want to wait 2+ years to finalize the final aspect of our separation, let alone not have the autonomy of funds.

Thank you for any input or advice. Online otherwise seems to end at the t2220 timeline stipulation.
Are you talking about a marital separation of assets?

If so, as part of the settlement, you are able to move registered assets (RSPs) from one spouse to the other, without withdrawing them (and thus be subject to income tax).

But it has to be part of the divorce settlement.
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Old 09-09-2017, 10:25 AM   #10
81MC
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Thank you. I'm totally an idiot and assessed the terms wrong. Sounds like it's easy.
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