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Spousal RRSP: Income Splitting

A reliable way in Canada to do income splitting  is by using the concept of the Spousal RRSP. The advantage of a Spousal RRSP is that you can put money away for your spouse. The important factor of this system is that if your spouse has a small retirement income, the spousal RRSP income will be taxed at their lower rate. Other than Pension Income Splitting, this is the only other way to split retirement income.

How does a Spousal RRSP Work ?

What do I mean? In my case, currently I work for a company with a very generous pension. Whether I make it to retirement here is another subject for another time. Let’s assume that I do get to retirement and draw my pension (which hopefully still exists). If I have also put away money in an RRSP for ME, all income for me and my lovely wife is taxed in in MY name (and thus all income is added together and most likely vaults me into a higher tax bracket). If, however, I have put all my RRSP money in a spousal RRSP, the RRSP moneys (which are most likely now in a RIF or some pay out scheme) are taxed in my wife’s hands at a much lower tax rate! Thus you have income splitting.

Now this is a quick overview of the spousal RRSP. I will put together a few concrete examples in the next few days to outline this. There are also other interesting features of the spousal RRSP to discuss, which I will bring up as well. Stay tuned.

Feel Free to Comment

  1. The introduction of spousal RRSPs in the mid 80s was another patchwork fix. CPP/QPP allows splitting because it is based upon Family Law which says each spouse has entitlements to household assets and pension income.

    Yes, I can divorce my wife and legally split pension income. What does that say about our tax system?

    If you Google pension splitting there is very obviously a movement taking off on the subject.

    Time we stop talking about it and demand that our MPs do something about it.

    Pension splitting is not just for seniors. Anyone who subscibes to a pension plan or RRSP has a stake. Everyone should be able to retire with dignity. What good is it to save for retirement only to have it taxed away.

  2. As a senior, well into retirement, I find this topic interesting. I don’t think RRSP’s were around during all the years when some of today’s seniors were working. The purpose of spousal RRSP’s is to provide the wife some pension income in retirement, and that helps equalize income between the spouses and thus reduce their taxes. Of course all these dodges would be unnecessary if the government simply allowed couples to file jointly, as was recommended by the Carter Commission in 1966 and as done in the U.S.

  3. I believe you can manage you non-registered investment portfolio in similar fashion. If your wife earns any income, YOU pay all the bills, and SHE invests her income in a low taxed (dividends & capital gains) investment. If your wife earns no income, speak to a tax accountant to see if you can “gift” her the investment money, without the earnings being attributed back to you.

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