A spousal RRSP is
a special account set up solely in the name of an individual whose
spouse is also named as a registered payer (a contributor) of
tax-deductible contributions. The contributor gets the tax deduction,
but the contributor's benefit stops there. The spouse is the legal owner
of the plan and, as such, makes all the investment decisions or
withdrawals. The owner can withdraw fund from the account and pay income
tax on his/her marginal rate. It is supposed that this rate is lower
than the contributor’s rate.
One of the few income-splitting opportunities
available to couples – spousal RRSPs
makes sense when one spouse expects to have a lower income in retirement
or child-rearing years. A family with an annual income of $70,000 taxed
in the hands of one spouse would pay taxes of $25,000, for example, but
split that income equally between them and the tax bill drops to
You can contribute to a
spousal RRSP up to your annual RRSP
contribution limit. If you have a contribution limit of $7,500, for
example, your combined contributions to your own RRSP and the
can't be more than $7,500. And your contributions don't lower your
spouse's contribution limit to his or her own RRSP.
How you split your contribution amount is up to you.
Each spouse may contribute up to 100 per cent of their available annual
contribution limit into spousal RRSP,
as well as any remaining room into their individual RSP accounts. It may
be appropriate for the spouse, who has a generous pension, to make most
or all his contributions to a spousal plan; even if that means the
non-pension spouse ends up with more RRSP assets.
There are a few restrictions, however, that unless
understood at the outset, can hinder the tax-effectiveness of a spousal
plan. To prevent abuse, Canada Revenue Agency has
strict "attribution" rules concerning early withdrawals.
If a spouse makes a withdrawal from a
spousal RRSP in
the current calendar year and either of you has contributed to the plan
in the current year or in the two preceding years, the amount of the
withdrawal — up to the amount contributed during this period — is added
to your taxable income. Only if no contributions were made to any
spousal plans in the three-year period preceding the withdrawal would
your spouse be liable for any income tax on the withdrawal.
In May 2008, Joshua started contributing to his wife Keri's
RRSPs. He contributed the following amounts to her RRSPs:
In 2010, Keri withdrew $4,000 from her spousal RRSPs.
Before 2010, she had not withdrawn any amounts from her
spousal or common-law partner RRSPs.
Keri determines that Joshua has to include $4,000 in his
income on line 129 of his 2010 return, since the amount
Joshua has to include as income is the
the amounts he contributed to all spousal RRSPs for his
wife in 2008, 2009 and 2010 ($5,000); and
the amount his wife withdrew from her spousal or
common-law partner RRSPs in 2010 ($4,000)
Keri does not include any amount in her income for this
The word "any" is particularly
important here. A withdrawal from a
spousal RRSP, to which no contributions
were made during the three-year period, will still be attributed to your
income if, over that three-year period, contributions were made to other
spousal plans, regardless of when they were set up or where they are
So if your spouse makes a withdrawal from the
spousal RRSP held
at Manulife Insurance Company, to which you've made no
contribution since it was set up five years ago, all or part of that
money your spouse withdrew would be considered part of your taxable
income if you contributed to a spousal
RRSP held at RBC Dominion Securities
Inc. in the last year.
Note also the term "calendar year." Making a
contribution in January 2009 would mean your spouse must wait until
January 2012 before a withdrawal would no longer have any tax impact. A
contribution made in December 2008, however, would allow your spouse to
make a withdrawal as early as January 2011, in other words in the third
year after the year when the contribution was made.
for more information and to
discuss your investment and retirement program.
have any questions or concerns feel free