www.advisor.ca 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. SALARY MUST PROVINCIAL CREDITOR PROTECTION FOR RRSPS BE “REASONABLE” 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. Golombek@aimtrimark.com.
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