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Spousal RRSP: One last thought

So the concept of a spousal RRSP really is a good thing if your household is a SINGLE income household (or if only 1 of the income will have a pension). It allows for a “load sharing” arrangement for income, which then means lower taxes and better things all around for the retired couple.

Are there other things that a spousal RRSP can get you? Funny you should ask that question, because I checked the Revenue Canada site for that exact question and found out that after three years of sitting in a Spousal RRSP the money there is effectively owned by the Spouse, if the spouse withdraws money from the RRSP. Here is there example as well:

In May 2002, Joshua started contributing to his wife Keri’s RRSP. He contributed the following amounts to her RRSP:

Year Amount
2003 $2,000
2004 2,000
2005 +1,000

Total $5,000

In 2005, Keri withdrew $4,000 from her spousal RRSP. Before 2005, she had not withdrawn any amounts from her spousal RRSP.

Keri determines that Joshua has to include $4,000 in his income on line 129 of his 2005 return, since the amount Joshua has to include as income is the lesser of:

  • the amounts he contributed to all spousal RRSP for his wife in 2003, 2004, and 2005 ($5,000); and
  • the amount his wife withdrew from her spousal RRSP in 2005 ($4,000).

Keri does not include any amount in her income for this withdrawal.

Flaw in the Model

So this example shows that if Keri took the money out BEFORE three years it is taxed in her husband’s hands, however if she had waited until 2006, she could have withdrawn
$2,000.00 and it would have been taxed as income in HER hands, not her husbands.

Something to keep in mind. Check out the Revenue Canada site to be sure on this one!

Feel Free to Comment

  1. I’m afraid it doesn’t work that way. In your example, if Keri withdraws any amount from the RRSP in 2006 or 2007, Joshua would have to report it in his tax return.

    The rule is this: a withdrawal from a spousal RRSP will be taxed in Keri’s hands only if no contributions were made to any spousal RRSP by Joshua in the year the withdrawal is made AND in the preceding two years.

    In your example:
    2006, 2007, 2008 – No contribution made by Joshua to any spousal RRSP.
    Keri can withdraw in 2008 and the withdrawal will be taxed in her hands.

    Bottomline: Read the fine print!

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