Retirement savings, whether held in an RRSP or RRIF, are generally exempt from seizure, subject to some exceptions. Understanding these exceptions is important for both debtors and creditors.
Bankruptcy and Insolvency Act
Section 67(1)(b.3) of the Bankruptcy and Insolvency Act ("BIA") provides that:
(1) The property of a bankrupt divisible among his creditors shall not comprise
(b.3)... property in a registered retirement savings plan or a registered retirement income fund, as those expressions are defined in the Income Tax Act, or in any prescribed plan, other than property contributed to any such plan or fund in the 12 months before the date of bankruptcy. (emphasis added)
Accordingly, should an individual become bankrupt, her contributions made to an RRSP account or a RRIF account more than 12 months prior to bankruptcy will be exempt from seizure by her trustee in bankruptcy. Any contributions within the 12 month preceding the bankruptcy will, however, be property that becomes vested in the trustee.
Court Order Enforcement Act
The situation is different outside of bankruptcy in British Columbia. Sections 71.3(2) and (3)(a) of the British Columbia Court Order Enforcement Act ("COEA") provide that:
(2) Despite any other enactment, all property in a registered plan is exempt from any enforcement process.
(3) Subsection (2) does not apply
(a) to property contributed to a registered plan after or within 12 months before the date on which the debt being enforced came due.
COEA defines "registered plan" to include a deferred profit sharing plan, registered retirement savings plan and a registered retirement income fund, each as defined in the Income Tax Act.
Execution against contributions more than 12 months earlier
At first glance, the BIA exemption for RRSP and RRIF contributions would appear to be the same as the COEA exemption; however, there is a subtle, but important difference. The right to take enforcement proceedings in respect of RRSP and RRIF contributions under the COEA is triggered not by the date of the contribution, as with the BIA; but by the date on which the debt being enforced came due. The triggering date was the subject of consideration in the case of Prima Technology, Inc. v. Yang, 2018 BCSC 669.
In this case the defendant, Ms. Yang, had between 2007 and 2015 contributed $143,813.94 to her RRSP. In 2015, a court in Washington State found Ms. Yang and her husband liable for converting over $7,000,000 U.S. from the plaintiff between 2005 and 2007. The Washington State judgment was recognized by the British Columbia court on December 16, 2016. The plaintiff then sought to enforce the British Columbia judgment against Ms. Yang by executing against her RRSP account.
Ms. Yang attempted to argue that the RRSP account was exempt since the "debt" sought to be enforced was the December 16, 2016 judgment of the British Columbia court that recognizing the judgment of the Washington court. Under such analysis, the contributions to the RRSP would be exempt. However, Mr. Justice Macintosh, on appeal from the earlier decision of a Master in favour of the plaintiff, found that:
... the debt became due when Ms. Yang and her husband defrauded Prima Technology in the 2005/2007 period. The moment she diverted one dollar of Prima's money to her own pocket, her debt of one dollar to Prima became due.
... the fact that Prima Technology may be afforded broad relief at law for the conversion does not change the fact that the money was due to Prima the moment it was taken. It cannot matter when and where Prima was able to effect a judgment against Ms. Yang, whether in Washington in 2015 or in British Columbia in 2016.
The Yang decision emphases important points for both creditors and debtors:
1. A debtor with significant RRSP or RRIF contributions and potential claims against her that may allow a creditor to reach back several years, and not just 12 months, may be better off in a bankruptcy process than in defending the claims. (Note that with respect to Ms. Yang her debt might well be one that would survive bankruptcy under section 178 of the BIA, so bankruptcy might not assist her in protecting her RRSP contributions.)
2. Characterization of the claim is important. A "debt being enforced" under COEA is not limited to the judgment that might subsequently be obtained. If an amount can be said to be "owed" as of an earlier date than the judgment date, that might permit the creditor to execute against the RRSP or RRIF account of the defendant that might otherwise appear to be exempt on the 12 month analysis.
Creditors and debtors alike need advice when RRSP or RRIF accounts might be available to satisfy debts.