Boost Your Tax Savings with a Spousal RRSP

  • rrsp for spouses and common-law partners

As the name would indicate, a Spousal RRSP is a plan that is registered in the name of your spouse or common-law partner; however, contributions to the Spousal RRSP are made by you.  As the contributor to the spousal plan, you reap the benefits of the tax deduction, while the withdrawals are taxed in the hands of the annuitant (the plan owner), your spouse.

rrsp for spouses and common-law partners

A Spousal RRSP helps you equalize your income in retirement while taking advantage of valuable tax deductions during your income earning years.

Spousal RRSPs are not practical for everyone.  It is most effective when there is income disparity between spouses.  If you have a significantly higher income than your spouse or common-law partner, the Spousal RRSP helps you equalize your income in retirement while taking advantage of valuable tax deductions during your income earning years.  Since Canada operates on a progressive tax system, by having income taxed 100{cae2521f64dcff784c511b644c6cc8c98f9594c79acdd41ba953a724385391e5} in the hands of your lower-income earning spouse or common-law partner, your household’s overall tax liability is lowered.

Apart from being an efficient agent for income splitting, a Spousal RRSP also has another benefit.  While you are no longer able to contribute to your personal RRSP following the year you turn 71, you can continue to contribute to the Spousal RRSP until the end of the year your spouse or common-law partner turns 71. This allows you to take advantage of the tax deductions while the spousal plan continues to grow.

Though Spousal RRSPs have the potential to produce significant tax savings, there are two key factors you should consider.   First, your RRSP deduction limit will be reduced by the amount, if any, you make to the spousal plan.   If you exceed your RRSP deduction limit by over contributing to either your RRSP account or the Spousal RRSP account, you will be penalized for it.  However, although a contribution to a Spousal RRSP will reduce your deduction limit, it does not affect how much your spouse or common-law partner is able to contribute to their own RRSP.

Second, as it is designed for retirement purposes, withdrawals are subject to certain rules.  If your spouse withdraws funds from the Spousal RRSP within three calendar years of your last contribution, the value of any withdrawals prior to the “three year rule” will be attributed to you and included in your taxable income.  There are two exceptions to this rule.  If your spouse or common-law partner withdraws funds from the spousal plan for the Home Buyers’ Plan or the Lifelong Learning Plan no income inclusion will follow.

If you would like more information on this or other programs that can benefit you or your family, feel free to contact GB Pilley & Associates Ltd., Chartered Professional Accountants at 604 926 3522.

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2017-03-01T15:52:33+00:00