Spousal RRSPs and RRIFs, and Attribution Rules Regarding WithdrawalsSpousal RRSPs
Canadian tax laws allow you to put funds into either your own RRSP or a spousal RRSP. 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 When funds are eventually withdrawn, the spouse who is the annuitant of the RRSP (or subsequent RRIF) will be taxed, not the contributing spouse. However, there are exceptions to this if the funds are withdrawn too soon after a spousal contribution.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.
See our article on RRSP Contribution Limits.Tax Tip: Try to ensure both spouses will have approximately the same annual income in retirement.Spousal RRSP and RRIF attribution rulesIncome 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If the funds are withdrawn within 3 years of a contribution to a spouse's RRSP, all or part of the withdrawn amount will be taxed as income to the spouse who made the contribution. 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:
a. the total of all contributions to the spousal RRSP by the contributing spouse in the year, or in one of the two immediately preceding taxation years, and
b. the amount withdrawn
When a spousal RRSP has been converted to a RRIF, it becomes a spousal RRIF. 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.
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.