Reasons for Spousal RRSPs and The Attribution Rule

This week I had a few questions on spousal RRSPs. So, I thought I’d review some reasons for having them and how the attribution rule works.

Here are some reasons to have a spousal RRSP:

  • Over age 71 – Normally, you can't contribute to an RRSP in the year after you turn 71 even if you're still working. But if you have a spouse who is 71 or under, you can contribute to a spousal RRSP and still reap a tax break. As long as people have earned income from the previous year, this can be a smart move for those over 71 who have younger spouses.

  • Home Buyers’ Plan — A spousal RRSP can allow both spouses to access RRSP funds to purchase a home. Under the plan, a first-time buyer can withdraw up to $25,000 tax-free from their RRSP to help them buy a home. A spousal RRSP can allow the other spouse — even one who doesn't work outside the home — to access another $25,000 in funds for the same purchase.

  • One spouse plans to have a break from earning income — Whether it’s to start a business or have a child, the spouse expecting to have little or no income may want to withdraw money from their spousal RRSP and pay little or no tax.

The third point leads to questions about the contributor getting taxed when there is a withdrawal from a spousal RRSP. The rule is quite straight forward. The contributor will be taxed on any withdrawal from a spousal RRSP if the withdrawal occurs in the year of deposit or the following two calendar years. The attribution rule does not affect minimum RRIF payments however amounts in excess of the minimum could be subject to taxation in the contributor’s hands.

If you have any questions please let me know.

Take care, Scott Edgington Director of Wealth Qualified Financial Services 416-786-4140