When RRSP Withdrawals are Treated as Income for Child Support Purposes

Ensuring your client’s financial affairs are in order is an essential component in Family law. Oftentimes a client is undergoing significant life changes and facing lawyer fees, beginning support payments, assuming full carrying costs of the matrimonial home or a new rental. As a result, they make a withdrawal from their RRSP to sustain themselves. In these instances, it is important to know how to best advise your client of the consequences of these withdrawals in relation to their family law matter.

The starting point to determine if RRSP withdrawals are included as income is the total income on a T1 Income Tax and Benefit form, otherwise known as Line 15000. Since withdrawals are automatically included in this amount, there is a presumption that RRSP withdrawals are included in a party’s income for child support purposes, as required by section 16 of the Child Support Guidelines O Reg 391/97 (hereinafter ‘the Guidelines’) and confirmed by the Ontario Court of Appeal in Fraser v Fraser 2013 ONCA 715 and Ludmer v Ludmer 2014 ONCA 827.

However, the court does have discretion under section 17 of the Guidelines to depart form the presumption where including RRSP withdrawals would not result in the fairest determination of income. The onus lies on the party seeking the exclusion to demonstrate this to the court. This exercise often looks at the frequency, regularity, and, particularly, the reason for the withdrawal. While a withdrawal being irregular or non-recurring is an important factor, the court awards significant weight to the reason for the withdrawal in its determination of whether it would be fair to include it as income.

For example, where withdrawals are made for a legitimate, non-recurring purpose they may be excluded. Examples include covering the cost of a broken sewage pipe (Foley v Weaver 2010 ONSC 3305) and supplementing the cost of litigation (Ludmer v Ludmer; M. (J.C.) v M. (K.C.) 2016 ONCJ 475). Conversely, in Liu v Huang 2018 ONSC 3499 the court rejected to exclude RRSP withdrawals which were used to fund the family law litigation because the other payor-party had included their own RRSP withdrawal as income for support purposes, and it would have been unfair not to apply the same principle to both parties (para 135-136).

Ultimately, “the guiding principle in all of the case law is that the court is to determine an income figure that is fair and reasonable for the purposes of child support” (C.C. v B.M.C 2023 ONCJ 617, para 19). An example of this fairness balancing act can be seen in Horowitz v Nightingale 2015 ONSC 190, where the court included the average annual RRSP withdrawals as income for support, since withdrawals were consistently used to supplement income while also excluding a large one-time withdrawal of $1.7 million for a new residence, as its inclusion would unfairly inflate the support obligation. Conversely, in Fraser v Fraser, the Court of Appeal did not consider the inclusion of an RRSP withdrawal of $153,000 to assist in purchasing a home in the payor’s income as creating unfairness. The basis of the distinction was that the payor in Fraser had no other sources of income and not including the withdrawal would have resulted in no support being paid (Horowitz, para 33c)

The contrast between Ludmer and Liu or Horowitz and Fraser indicate that there is no set formula or ‘safe zone’ for RRSP withdrawals. Rather, it is a holistic and deferential exercise that the court undertakes. It’s uncertain nature places even more importance on the obligation to fully advise clients of the risks and impacts associated with RRSP withdrawal and their family law litigation.