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Spousal RRSPs and RRIFs, and Attribution Rules Regarding Withdrawals
Canadian tax laws allow you to put funds into either your own RRSP or a spousal RRSP for your spouse or common-law partner, from which they will eventually make withdrawals. If neither spouse will have a pension from their employment when they retire, then both spouses should try to have the same amount in RRSPs. If one spouse will have a pension, then the other spouse should probably have a greater amount in RRSPs. There are many variables to be considered when planning future retirement income, including significant spousal age differences.
In order to equalize RRSPs, the higher income spouse can contribute to a spousal RRSP for their partner. When funds are contributed to a spousal RRSP, the spouse making the contribution gets the deduction from income when the contribution is made. When funds are eventually withdrawn, the spouse who is the annuitant of the RRSP (or subsequent RRIF) will be taxed, not the contributing spouse. However, there are exceptions to this if the funds are withdrawn too soon after a spousal contribution. See the information below regarding attribution rules.
Fortunately, pension splitting can also help to equalize spousal incomes in retirement. This includes splitting of RRIF pension income.
See our article on RRSP Contribution Limits.
Tax Tip: Try to ensure both spouses will have approximately the same annual income in retirement.
It is much too easy to do an online contribution with the intention of making a spousal contribution, with result being that your spouse has actually made the contribution and it isn't considered a spousal contribution. Perhaps not all online accounts are the same, but with TD Direct Investing accounts, one must be logged in as the person who is the annuitant of the account, in order to make an online contribution to that account. When the online transfer is made, one is asked if this is or isn't a spousal contribution. When a spousal account is set up, it will have the name of the annuitant on it, and statements will say it is a spousal account.
Example: Gerry and Taylor - Taylor wants to contribute to a spousal RRSP for Gerry. When it is opened, the spousal RRSP will have Gerry's name on it, and it will be shown as a spousal RRSP. In all likelihood, to do an online contribution, Taylor or Gerry would have to log into Gerry's brokerage account or bank account. Whether or not the contribution is a spousal contribution will have to be indicated at the time of the transfer to the RRSP. If you aren't 100% positive that you are doing the right thing, don't do it online, because by the time you get the tax slip and find out it's wrong, it will be to late to change.
Tax Tip: Be very careful making online spousal RRSP contributions!!
Income Tax Act s. 146(8.3)
If the funds are withdrawn within 3 years of a contribution to a spouse's RRSP, all or part of the withdrawn from the spousal RRSP amount will be taxed as income to the contributing spouse. The Income Tax Act indicates that if an amount taken from the spousal RRSP would normally be taxable income in the hands of the spouse who is the annuitant of the RRSP, the following will be included in the taxable income of the contributing spouse - the lesser of:
This means that if both the contributing spouse and the annuitant make contributions in the year, or in one of the two immediately preceding years, then a withdrawal will first be taxable to the contributing spouse, up to the amount of the spousal contributions in that time.
There is an exception to the attribution rule. If the taxpayer is living separate and apart from the spouse or common-law partner at the time of the withdrawal, by reason of the breakdown of their marriage or common-law partnership, then the withdrawn amount will be taxable income of the annuitant instead of the contributing spouse.
When a spousal RRSP has been converted to a RRIF, it becomes a spousal RRIF, and withdrawals are made by the spouse (not the contributing spouse). There may be attribution of income to the contributing spouse for any RRIF withdrawals that are in excess of the minimum annual withdrawal for the year, depending on the amount of spousal contributions in the year or the two immediately preceding taxation years.
Canada Revenue Agency (CRA) Resources
T4040 Calculating the income you and your spouse or common-law partner have to report - see page 31 of the pdf.
To avoid having to include your spouse's RRSP withdrawals in your income, ensure that you have not contributed to the spousal plan in the year or in either of the two preceding taxation years.
To avoid having to include your spouse's RRIF withdrawals in your income, ensure that, if you have contributed to the spousal plan in the year or in either of the two preceding taxation years, only the minimum annual withdrawal amount is withdrawn.
Revised: October 26, 2023
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