Dividing RRSPs in a Saskatchewan Divorce: T2220 Transfer Rules

RRSPs are one of the most valuable assets on the table in a Saskatchewan divorce — and one of the easiest to mishandle. Transfer them correctly using CRA Form T2220 and no tax is triggered. Transfer them without it, and you face immediate withholding taxes plus permanent loss of contribution room. The difference can be tens of thousands of dollars.

The Tax-Free Transfer: Form T2220

The Income Tax Act allows spouses to transfer RRSP funds directly between their accounts on a tax-deferred basis during a divorce — but only if the transfer is made under a written separation agreement or court order, and the proper tax election is filed.

CRA Form T2220 (Transfer from an RRSP, RRIF, PRPP or SPP to Another RRSP, RRIF, PRPP or SPP on Breakdown of Marriage or Common-law Partnership) is the mechanism. When completed correctly:

• No withholding tax is applied to the transfer
• The transferring spouse does not include the amount in taxable income
• The receiving spouse does not lose any of their own RRSP contribution room
• The transferred amount goes directly into the receiving spouse's RRSP or RRIF

What Happens Without Form T2220

If RRSP funds are withdrawn directly rather than transferred under Form T2220, the consequences are immediate:

• Withholding tax: The financial institution deducts tax at source — 10% on the first $5,000, 20% on $5,001–$15,000, and 30% on amounts over $15,000
• Income inclusion: The full withdrawal amount is added to the withdrawing spouse's taxable income for the year
• Lost contribution room: Unlike a T2220 transfer, a withdrawal permanently reduces the withdrawing spouse's lifetime RRSP contribution room

On a $100,000 RRSP, an improper withdrawal could cost $30,000 in withholding tax upfront, plus additional tax payable at filing time if the withdrawal pushes the spouse into a higher bracket.

The Latent Tax Liability Problem

This is the trap that creates unfair divisions. An RRSP worth $200,000 is not the same as $200,000 in a savings account. When the RRSP is eventually withdrawn in retirement, the entire amount will be taxed as income. The "latent tax liability" — the future tax that will be owed — reduces the real after-tax value of the account.

If one spouse keeps a $200,000 RRSP while the other takes $200,000 in cash from a savings account, the division is not equal. The cash has already been taxed; the RRSP has not. At a 30% marginal rate, the RRSP's after-tax value is closer to $140,000.

Saskatchewan courts recognize this issue. When comparing RRSP assets against non-registered assets for equalization purposes, a "net-of-tax" adjustment should be applied. The challenge is estimating the tax rate — it depends on the spouse's expected income in retirement, which is speculative.

A reasonable approach for negotiation purposes: apply a 25–35% discount to the RRSP's face value when comparing it against after-tax assets. This range captures most marginal tax rates for Saskatchewan residents.

TFSAs: The Simpler Case

Tax-Free Savings Accounts are family property and subject to equal division, but they have no latent tax liability — withdrawals are tax-free. The face value of a TFSA is its real value, and contribution room is restored the following calendar year after a withdrawal.

TFSAs can simply be withdrawn and re-deposited into the other spouse's TFSA (subject to their available contribution room) without any special tax form.

Getting the Transfer Right

The T2220 transfer must reference the written separation agreement or court order that specifies the RRSP division. The financial institution processing the transfer will require a copy of this document along with the completed form.

The Saskatchewan Divorce Financial Split & Asset Division Guide walks through the RRSP division process step by step — from calculating the latent tax liability for fair comparisons, through completing the T2220 election, to coordinating the transfer with your financial institution.

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