If you are married or in a common-law relationship and have a Registered Retirement Savings Plan (RRSP), you may have heard of spousal RRSPs. Spousal RRSPs allow one spouse or common-law partner to contribute to the other’s RRSP. This can be a tax-effective way to split income in retirement, and it can also help you save more for retirement as a couple.

However, it’s important to understand the rules around spousal RRSP withdrawals and attribution to avoid any unexpected tax consequences. In this blog post, we’ll cover everything you need to know about spousal RRSP withdrawals and attribution in Canada.

Spousal RRSP Withdrawals

When it comes time to withdraw funds from your spousal RRSP, there are a few important things to keep in mind. First, withdrawals from a spousal RRSP are taxed in the hands of the annuitant (i.e. the person who owns the RRSP). This means that if your spouse contributed to your spousal RRSP, but you withdraw the funds, the withdrawal will be added to your taxable income for the year.

Second, there are certain restrictions on spousal RRSP withdrawals. If you withdraw funds from a spousal RRSP within three years of your spouse making a contribution, the withdrawal may be subject to the Attribution Rules. This means that the income earned on the contributed funds will be attributed back to your spouse, and they will have to pay tax on it.

For example, let’s say your spouse contributes $10,000 to your spousal RRSP in 2022. If you withdraw $5,000 from the spousal RRSP in 2023, the income earned on the contributed funds (i.e. the $10,000) will be attributed back to your spouse in 2023. This means that your spouse will have to pay tax on the income earned on the $10,000 contribution in 2023.

However, if you wait until after the three-year period has elapsed to make a withdrawal from the spousal RRSP, there will be no attribution of income. This means that you can withdraw funds from the spousal RRSP without any tax consequences for your spouse.

Spousal RRSP Attribution

In addition to the attribution rules for spousal RRSP withdrawals, there are also attribution rules that apply to spousal RRSP contributions. These rules are designed to prevent income splitting between spouses through the use of spousal RRSPs.

Under the attribution rules, if you contribute to your spouse’s spousal RRSP, any income earned on the contributed funds will be attributed back to you for tax purposes. This means that you will have to include the income earned on the contributed funds in your taxable income, even if your spouse owns the spousal RRSP.

For example, let’s say you contribute $10,000 to your spouse’s spousal RRSP in 2022. If the contributed funds earn $1,000 in income in 2022, the $1,000 in income will be attributed back to you, and you will have to include it in your taxable income for the year.

However, the attribution rules only apply to income earned on contributed funds. If your spouse withdraws funds from the spousal RRSP, the withdrawal will be taxed in their hands (as discussed above).

Conclusion

Spousal RRSPs can be a useful tool for couples to save for retirement and split income in retirement. However, it’s important to understand the rules around spousal RRSP withdrawals and attribution to avoid any unexpected tax consequences. If you have any questions about spousal RRSPs or how they may fit into your overall retirement plan, get in touch today.