Spousal RRSP

A spousal RRSP is a retirement savings plan registered in the name of your spouse including common-law and you make contributions based on your income.

In the case that your spouse’s income will be lower than your own during retirement, making your annual contributions into a spousal plan is an effective way of income splitting for tax purposes.  Whatever amount you are eligible to contribute to your own RRSP plan, can be contributed to a spousal RRSP instead.  The amount that is contributed to the spousal RRSP, the contributor gets to personally claim the tax deduction.  The contributions you make to the spousal RRSP will not affect your spouse’s ability to contribute to his/her own RRSP up to his/her yearly limit.

Because a high-income earning spouse can contribute and have funds immediately withdrawn and taxed to the lower-income spouse, an “anti-avoidance” provision is attached to the spousal plans.

This provision states that any amounts withdrawn from a spousal RSP plan are to be taxable to the contributor if the contributions have been made in the year of the withdrawal or the two previous calendar years.  This is a three year withdrawal rule and it does not apply to a spouse withdrawing funds while a separation or a marriage breakdown.  Once your spouse reaches retirement, all the funds from the spousal RSP must be transferred to a spousal RRIF for tax purposes.  Any amounts that are withdrawn beyond the annual minimum are subject to the three year withdrawal rule.


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