Creditor Proof by csgirla

                                                                                                                                  ADVISOR’S EDGE REPORT JANUARY 2005 13

employer is required to respond
to the following: “Did you require            Creditor Proof?                                                      insurance legislation protecting insur-
                                                                                                                   ance RRSPs from creditors.
                                                                                                                                                                            his creditors even though there is no
                                                                                                                                                                            legislation in Ontario that specifi-
this employee under a contract of BY CHARLEY TSAI                                                                     Two recent court decisions may                        cally protects RRSPs from creditors.
employment to … pay for a substi-                                                                                  affect the creditor-proofing sta-                           Until the Amherst Crane case, the
tute or assistant?”                   Recent court decisions may alter       case of a deceased RRSP                           tus of RRSPs in the                          prevailing view from courts was that
    If your employer refuses to the status of non-insurance RRSP             annuitant. British Colum- It is possible          future. First, in May,                       RRSPs can be seized by creditors of
complete the form, you will not be accounts when it comes to credi-          bia and PEI, for exam- that the                   the Supreme Court of                         a deceased annuitant even if the
successful in claiming a salary paid tor protection. For now, however,       ple, have legislation that                                                                     RRSP had named beneficiaries.
                                                                                                          courts in other Canada in Bank of Nova
to an assistant. The judge explained whether your clients’ RRSPs are         exempts RRSPs from                                Scotia v. Thibault ruled that                   The impact of this decision may
the purpose of the form in his protected by creditors depends on             forming part of the estate.
                                                                                                          provinces            creditors in Quebec can                      extend to clients living in other
decision as follows: “The filing of where they reside and whether they       PEI’s legislation goes fur-  may take             seize a debtor’s RRSP                        provinces as well. All common-law
Form T2200 serves a dual function: are alive or not.                         ther, specifically excluding guidance from because the terms of                                provinces and territories have bene-
it is a statutory condition precedent    Generally, a creditor can seize a   RRSPs from being sub- the Ontario                 the RRSP failed to meet                      ficiary designation legislation that
to the claiming of an employment debtor’s assets unless they are declared    ject to claims by creditors decision.             the conditions necessary                     is quite similar, and it is possible
expense deduction under … [the exempt in that province or territory.         of the deceased annuitant.                        under Quebec legislation                     that the courts in other provinces
Act] … and it provides evidence of But to date, only Saskatchewan and           Alberta, which currently has no to exempt these assets from creditors.                      may take guidance from the Ontario
the terms of employment. I doubt Prince Edward Island have enacted           legislation protecting clients’ non-     Then in June, Ontario’s top court                     decision.                        AER
that the form is conclusive or deter- laws to exempt non-insurance RRSPs     insurance RRSPs from creditors, in Amherst Crane Rentals Limited v. Arlene
minative if the evidence showed it and RRIFs from creditors while the        has insurance legislation protecting Clare Perring upheld a lower court                        Charley Tsai, LL.B., CFP, TEP, is assis-
to be wrong but it is at least prima annuitant is alive.                     insurance RRSPs from creditors. decision exempting a deceased annu-                            tant vice-president, tax and estate planning,
facie evidence.”                         The rules change slightly in the    Almost, if not all, provinces have itant’s RRSP from being seized by                           for AIM Trimark Investments.

                                                                        PROVINCIAL CREDITOR PROTECTION FOR RRSPS
Finally, ensure that the salary paid                                         During annuitant’s lifetime                                         Subsequent to annuitant’s death
to your spouse is “reasonable” and
reflective of the work being per-              British Columbia              Court decisions have confirmed RRSPs are not protected              Provincial legislation excludes RRSPs from forming part
formed. In other words, what would                                           from creditors while the annuitant is alive.                        of the deceased’s estate. As a result, it is likely RRSPs will

you pay an arm’s-length person for                                                                                                               be exempt from creditors of the deceased annuitant.

the amount of work you are hiring
                                               Alberta                       Creditors’ ability to seize RRSP assets has been confirmed          There appears to be no reported court decision on this issue.
your spouse or partner to do?
                                                                             by the courts in Alberta.                                           However, an Alberta court has ruled an RRSP formed part of
                                                                                                                                                 a deceased’s estate for purposes of a dependant relief claim.
What would you
pay an arm’s-length                            Saskatchewan                  The Registered Plan (Retirement Income) Exemption Act               The above legislation does not appear to protect RRSPs

person for the amount                                                        of Saskatchewan specifically exempts RRSPs from any                 of a deceased annuitant from his or her creditors. However,
                                                                             enforcement process except for support payments.                    a court ruling in Saskatchewan has disallowed creditors
of work you are                                                                                                                                  from seizing the RRSP assets of a deceased annuitant.
hiring your spouse or
partner to do?                                 Manitoba                      Court decisions have confirmed RRSPs are not protected              The province’s highest court refused to protect assets held
                                                                             from creditors while the annuitant is alive.                        in an RRSP from a deceased’s creditors back in 1997.
     Another recent case decided in                                                                                                              The same court was reluctant to follow its own ruling in a

September of 2004, Hampson v. The                                                                                                                subsequent decision involving the same issue, but did not
                                                                                                                                                 expressly overrule it.
Queen, 2004 TCC 623, involved a
self-employed psychologist earning
                                               Ontario                       A number of Ontario court cases have held that RRSPs are            The Amherst Crane case reversed several lower court
just over $60,000, who attempted
                                                                             not protected from creditors during the annuitant’s lifetime.       decisions that had held that RRSPs were available to credi-
to deduct $16,000 in salary paid to                                                                                                              tors of deceased annuitants. As a result of Amherst Crane,
his wife to assist him in his work.                                                                                                              RRSPs are now creditor-proof on the death of the annuitant
     In court, Mr. Hampson pro-                                                                                                                  so long as the annuitant’s estate is not the designated
duced a list of tasks that made up                                                                                                               beneficiary of the RRSP.
the work for which he paid his wife.
The list consisted of such things as           Quebec                        Although Quebec law exempts fixed-term annuities purchased          Based on Thibault and other prior decisions in the province,
receiving and responding to phone                                            from trust companies from seizure on the same terms and             it is likely that most RRSPs will not be protected from
calls and e-mails, scheduling appoint-                                       conditions as annuities obtained from insurers, the Supreme         creditors following the death of the annuitant.
ments, paying bills and keeping                                              Court of Canada decision in Thibault will make it very difficult

receipts current. The CRA main-                                              for most RRSPs to qualify.
                                                                                In essence, the Supreme Court said an annuity will not exist
tained that these types of activities
                                                                             if the annuitant is allowed to retain control of the annuity
really amount to “little or nothing
                                                                             capital. Since the terms of most RRSPs allow the annuitant
more than any stay-at-home spouse
                                                                             to decide how the assets in a plan are invested, and to make
would do without compensation …                                              unrestricted withdrawals from the plan, it is likely that
[and that $16,000 was] an unrea-                                             most RRSPs will not generally qualify as annuities and,
sonable amount to pay for those                                              therefore, are not protected from creditors.
services.” The judge agreed and dis-
allowed the expense.                           New Brunswick                 Case law in this province has confirmed that RRSPs can              New Brunswick does not appear to have any reported
     While hiring a spouse can still be                                      be seized by creditors.                                             court decisions on this issue. It is therefore unclear whether
an effective income-splitting method,                                                                                                            creditors can seize RRSPs of deceased annuitants.
given these two cases you may wish
to ensure that your employer is                Prince Edward Island          PEI legislation exempts an annuitant’s RRSP from creditors,         PEI legislation also exempts RRSPs from creditors of

onside and that the amount you pay                                           provided a spouse, child, grandchild or parent is the named         a deceased annuitant.
                                                                             beneficiary of the RRSP.
is, indeed, reasonable.           AER

                                               Nova Scotia,                  There are no reported cases on this issue in these provinces        There are also no reported cases on this issue in these
Jamie Golombek, CA, CPA, CFP, CLU,
                                               Newfoundland,                 and territories. However given these provinces and territories      provinces and territories. It is uncertain how the courts in
TEP, is vice-president, taxation and estate    Northwest Territories,        do not have laws excluding RRSPs from seizure, it is quite          these provinces and territories will deal with this issue.
planning, at AIM Trimark Investments in        Yukon                         likely creditors will be able to seize these assets.
Toronto. Jamie can be reached at Jamie.

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