Canadian Personal Finance Blog

One of the reasons I write this blog is sometimes I learn things myself on my topics. Now I had been told (by a Financial Advisor no less) about the three year attribution rules in Spousal RRSPs (that I talked about yesterday in this flawed posting).

Luckily our friend over at the Canadian Capitalist (a reputable blogger, who researches things far better than I do), points out that the three year attribution rule actually means, no money was contributed to this plan AT ALL during those three years, so you have to wait three years before the money would be taxed in your spouse’s hands. In fact the TD Canada Trust web page has a very good explanation that I will shamelessly plagiarize:

The three year attribution rule

It is important when considering spousal RSPs to understand the impact of the three year attribution rule. This rule is designed to prevent a high-income spouse from contributing to a spousal plan and having the funds almost immediately withdrawn and taxed to the lower income earning spouse. If your spouse withdraws from their spousal RSP within three calendar years of your last contribution to any spousal RSP, the withdrawal is treated as income on your personal tax return. If the withdrawal is made more than three years after the contribution, the withdrawal is treated as income on your spouse’s tax return. The important thing to note is that the three years are based on calendar years. If your last contribution was made in December 1998, a withdrawal is taxable as your income until January 2001.

If the contribution were made in January 1999, even if it is applied to your 1998 tax return, a withdrawal before January 2002 would be taxable as your income.

The three year rule does not apply in the following cases:

• The spouses are living apart due to marriage breakdown
• Death of the contributing spouse in the year a withdrawal is made
• Either spouse becomes a non-resident of Canada for tax purposes
• If the money is transferred to an annuity

What does this mean? Well, don’t believe everything you read in blogs (well maybe just my blog), always research things (especially things that might get you audited by Canada Revenue), and be skeptical too.

It’s important to learn new things every day, and I did! –C8j

P.S. : My new hero, Mr. Red Paper Clip now has traded up to an afternoon with Alice Cooper! Can someone figure out what I can trade to get that??????!??!??!