The Ontario Court of Appeal had occasion to analyze precisely this question in the context of deciding a matrimonial case in Ludmer v. Ludmer, 2014 ONCA 827.
After nearly 20 years of marriage, Lisa and Brian Ludmer separated. There were two children of the marriage, both adults and at the time of trial, both attending university.
The claims as between Mr. Ludmer and Ms. Ludmer revolved around the financial and property issues arising out of their marriage, including child and spousal support and the equalization of family property.
Many of us have RRSPs in our accounts. At times, we break or withdraw funds from these RRSPs. The question that arises is what happens to these RRSPs when we break them? Does this money become income? Or can it excluded from being considered as income?
Analysis
This appeal from the matrimonial case concerns the issues on which Mr. Ludmer was unsuccessful and the findings made against him, including the following:
a) in calculating the parties’ income (by failing to accept Mr. Ludmer’s business expenses for the purposes of spousal support, and by failing to include the proceeds of both parties’ RRSPs in income for purposes of support.
RRSPs
[21] In 2007 and 2008 each party cashed in RRSPs – Ms. Ludmer in the total amount of $347,057, and Mr. Ludmer in the total amount of $181,964. Clearly, the inclusion of these amounts in income would have favoured Mr. Ludmer in the calculation of child support. The trial judge did not do so.
[22] This Court has held that RRSP income is “presumptively part of a spouse’s income for child support purposes.” That is because section s. 16 of the Guidelines provides that a person’s annual income for child support purposes is determined using the sources of income set out under the heading “Total income” on the T1 tax form. RRSP income is included as part of “Total income” on the T1 tax form: see Fraser v. Fraser, 2013 ONCA 715 (CanLII), 40 R.F.L. (7th) 311, at para. 97.
[23] The inclusion of RRSP proceeds is not mandatory, however, and the court has the discretion in appropriate circumstances to do otherwise. Section 17(1) of the Guidelinesprovides this flexibility:
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 three 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-recurring amount during those years. [Emphasis added.]
[24] Here, the trial judge excluded both parties’ RRSP proceeds from the calculation of their income for support purposes on the basis that they were “non-repeating encroachments on capital”. Ms. Ludmer’s financial statement indicated that she used her proceeds primarily to finance this costly litigation, not to enhance her lifestyle.
[25] The trial judge did not state specifically that he was applying the analysis under ss. 16and 17 of the Guidelines when arriving at this decision. However, his reasons show that he was alive to the need to arrive at income levels that “fairly reflected” the financial capacities of the spouses for the purpose of support. In short, his reasons show that, in his view, including the RRSP proceeds in the parties’ incomes “would not be the fairest determination of [the spouses’ incomes]” for support purposes, and that in excluding them, he was arriving at an amount that was “fair and reasonable in light of any pattern of income, fluctuation in income or receipt of a non-recurring amount”.
[26] I see no error in his decision to exclude the RRSP proceeds from the parties incomes.
What does this mean?
The key analytical point is the phrase “non repeating encroachments of capital.” In other words, if the RRSP was used for non essential purposes, then, the RRSPs may be used in income calculation. This is a fact driven exercise.
So for example, if the evidence shows that the RRSPs were withdrawn to be splurged and to support a luxurious lifestyle, the consequences could be very different from what was concluded here. In this case, the RRSPs were used exclusively towards essential purposes only. Hence, the exclusion from being considered as income.
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