New RRSP Rules Make Separation Less Taxing


On January 1, 2020,  the federal government changed the tax law relating to the way property is divided in family law matters which will make it easier for separating parties to purchase new residences.

Individuals who are separating from their married or common law spouse can qualify to withdraw money from their Registered Retirement Savings Plan (“RRSP”) without incurring a tax penalty, as long as the money is being used to purchase a new home.

The separating spouse can either in the year they separate or in the four years subsequent to separation, access the Home Buyer’ Plan (“HBP”), which will effectively give them first-time home buyer benefits.

Currently, the maximum amount allowed to be withdrawn is $35,000 from an RRSP and it must go directly towards a down payment on a home. The separated spouse withdrawing the funds from the RRSP will not have to pay tax on the withdrawal.

What does this mean practically for your separation?

After separation, one or both parties will likely be purchasing a new residence. Under the HBP, funds that have been removed from the RRSP for the purposes of purchasing a home must be paid back over 15 years, beginning 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. Although funds may be withdrawn by a separated spouse to take advantage of the tax benefits prior to the determination of marital assets, it is important that these funds are accounted for correctly in the settlement of family property including the proportionate sharing of the associated tax benefit.

If you have questions regarding how this may affect your separation or want more information regarding property division upon separation, contact one of the lawyers in our Family Law Group.