Personal Finance

Question about contributing to your spouse's RRSP

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  • Feb 19th, 2015 6:06 pm
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Jr. Member
Jul 18, 2011
116 posts
35 upvotes

Question about contributing to your spouse's RRSP

Hey guys,

I was doing my friend's taxes and I realized he owes close to 3k since he did not pay any taxes on his part time work. He is planning to put enough money to bring the amount down to $0. Before I ask my questions you prob need to know that he earns close to 130k and his wife earns around 80k. So here are my questions:
1) can he put money in his wife's RRSP instead of his? if he does that, can he still declare it under his name?
2) since he earns more money than her and assuming things stay this way in the future, I'm assuming he can save on tax since his wife can take that money out and pay much less tax (since she earns less). does this make sense?

I basically need some advice to maximize his return.
13 replies
Deal Fanatic
User avatar
Feb 19, 2010
6237 posts
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mmajedi wrote: Hey guys,

I was doing my friend's taxes and I realized he owes close to 3k since he did not pay any taxes on his part time work. He is planning to put enough money to bring the amount down to $0. Before I ask my questions you prob need to know that he earns close to 130k and his wife earns around 80k. So here are my questions:
1) can he put money in his wife's RRSP instead of his? if he does that, can he still declare it under his name?
2) since he earns more money than her and assuming things stay this way in the future, I'm assuming he can save on tax since his wife can take that money out and pay much less tax (since she earns less). does this make sense?

I basically need some advice to maximize his return.
You're correct on both your assumptions. He can make a spousal RSP contribution which comes from his own contribution room and gets him the tax benefits.

His wife has to keep the money in her account for the year of contribution plus two more years otherwise withdrawals, and therefore the income, will attribute back to him. IOW, a contribution now (2015) means that she can't withdraw any of it until 2018 (2015 + 2 more years).
Sr. Member
User avatar
Nov 3, 2008
684 posts
985 upvotes
National Capital Reg…
You need to look to setup Spousal RRSP. He will make contributions, receive tax slip, and reduce his tax payable. Assets within Spousal RRSP belong to the spouse, who in turn has full control over the account and investments. Keep in mind, if spouse withdraws money within 3 years of the last contribution, it will be the original contributing who must pay tax.
Sr. Member
Aug 17, 2008
513 posts
234 upvotes
Quebec
mmajedi wrote: Hey guys,

I was doing my friend's taxes and I realized he owes close to 3k since he did not pay any taxes on his part time work. He is planning to put enough money to bring the amount down to $0. Before I ask my questions you prob need to know that he earns close to 130k and his wife earns around 80k. So here are my questions:
1) can he put money in his wife's RRSP instead of his? if he does that, can he still declare it under his name?
2) since he earns more money than her and assuming things stay this way in the future, I'm assuming he can save on tax since his wife can take that money out and pay much less tax (since she earns less). does this make sense?

I basically need some advice to maximize his return.


1) Yes and yes. make sure HE have enough contribution room.
2) it makes sense, remember that she will have to wait 3 years to withdraw any money from that spousal RRSP. If she dont, the contributor will have to pay the taxes.
Deal Addict
Jan 7, 2014
2722 posts
549 upvotes
Manitoba
NCR-Manchester wrote: You need to look to setup Spousal RRSP. He will make contributions, receive tax slip, and reduce his tax payable. Assets within Spousal RRSP belong to the spouse, who in turn has full control over the account and investments. Keep in mind, if spouse withdraws money within 3 years of the last contribution, it will be the original contributing who must pay tax.
sr79 wrote: 1) Yes and yes. make sure HE have enough contribution room.
2) it makes sense, remember that she will have to wait 3 years to withdraw any money from that spousal RRSP. If she dont, the contributor will have to pay the taxes.
My question is regarding the spouse withdrawing the money after 3 years and I did not want to create a thread just for this.
I know that if the spouse withdraws after 3 years, it adds to her income and not to the contributor but are there any specific conditions in which spouse can withdraw money after 3 years ? Does there has to be any specific need or she is free to withdraw without any specific need or not. I heard that that there is no Law against withdrawal as such but if the " Spirit of the Law " to be considered , one should not withdraw without any specific reason.
Think about a situation where the spouse is a housewife( no income) .. If the high earning member contributes to spousal RRSP every year taking 30% refund back and after 3 years she withdraws the amount that causes her zero tax . They are saving 30% on taxes right... In Letter of law it works but in spirit it does not... What do you folks say?
Sr. Member
User avatar
Nov 3, 2008
684 posts
985 upvotes
National Capital Reg…
I say if the rules are followed, no issue. RRSP is property, and in this case not locked in. Spouse can withdraw without a reason. Spouse has no job and needs money? Good enough reason for me. The penalty here is withdrawn funds cannot be put back ever.
Member
Aug 20, 2014
226 posts
89 upvotes
Toronto, ON
wesboag wrote: Better yet, why are they not having a tax preparer or an accountant complete their returns? Incorrectly filing your taxes can be very costly both involving penalties and lost credits/deductions. I'm not being vindictive, just curious.
Well, spoken from experience, often times half of these "tax experts" are idiots with 2 month HR block training and don't know many of the basics. Also, unless you hire someone for a long term and pay an expensive fee, the corner store tax account won't care about the clients' long term outlook. A friend or family member would, usually, make efforts to understand, do the research and chooses what's best. Just a thought. :)
Deal Addict
Aug 30, 2011
3537 posts
1279 upvotes
Ottawa
Asker123 wrote: My question is regarding the spouse withdrawing the money after 3 years and I did not want to create a thread just for this.
I know that if the spouse withdraws after 3 years, it adds to her income and not to the contributor but are there any specific conditions in which spouse can withdraw money after 3 years ? Does there has to be any specific need or she is free to withdraw without any specific need or not. I heard that that there is no Law against withdrawal as such but if the " Spirit of the Law " to be considered , one should not withdraw without any specific reason.
Think about a situation where the spouse is a housewife( no income) .. If the high earning member contributes to spousal RRSP every year taking 30% refund back and after 3 years she withdraws the amount that causes her zero tax . They are saving 30% on taxes right... In Letter of law it works but in spirit it does not... What do you folks say?
Just to be clear... there can be NO contribution to ANY spousal plan in the 3-year period. So the "high earning member (who) contributes to spousal RRSP every year ... and after 3 years she withdraws the amount", your scenario won't apply if the husband continues to contribute every year. You probably already realize this, but just in case, it doesn't hurt to reiterate it!

Edit: add link http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... l-eng.html
Deal Guru
Feb 4, 2015
10332 posts
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Canada, Eh!!
OttawaGardener wrote: Just to be clear... there can be NO contribution to ANY spousal plan in the 3-year period. So the "high earning member (who) contributes to spousal RRSP every year ... and after 3 years she withdraws the amount", your scenario won't apply if the husband continues to contribute every year. You probably already realize this, but just in case, it doesn't hurt to reiterate it!

Edit: add link http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... l-eng.html
So to be sure I understand:

2015: Contribute 20k Spousal RRSP... can not withdraw until 2018... if before 2018 then considered income for contributor [higher earner in example in this thread]
2016: Contribute 20k Spousal RRSP... can not withdraw until 2019... if before 2019 then considered income for contributor [higher earner in example in this thread]
2017: Contribute 20k Spousal RRSP... can not withdraw until 2020... if before 2020 then considered income for contributor [higher earner in example in this thread]

Or am I misunderstanding and once higher earner contributes in 2015 can not contribute for three more years if spouse [lower earner] going to withdraw from Spousal RRSP in 2018?
If only withdraw up to amount contributed in 2015 would that be ok i.e. waiting three contribution years before withdrawing funds?

Yeah, think more confused now. Sorry all. :o

Thanks for clarifying.
Deal Addict
Aug 30, 2011
3537 posts
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Ottawa
georvu, see the bold in the following text, and the Tax Tip:

I hope that explains it better that I did!

[QUOTE]Calculating the income you and your spouse or common-law partner have to report
If you contributed to any spousal or common‑law partner RRSPs or your spouse’s account under an SPP in 2012, 2013, or 2014, you may have to include in your 2014 income all or part of:
  • amounts your spouse or common-law partner received in 2014 from any of his or her SPPs or unmatured spousal or common-law partner RRSPs;
  • commutation payments your spouse or common-law partner received in 2014 from any of his or her SPPs or matured spousal or common-law partner RRSPs;
  • amounts we consider your spouse or common-law partner to have received in 2014 from any of his or her SPPs or deregistered spousal or common-law partner RRSPs; and
  • amounts your spouse or common-law partner received, or those we consider he or she received, in 2014 from any of his or her spousal or common-law partner RRIFs that are more than the minimum amount for the year.
To determine the amount to include in your income or your spouse's or common-law partner's income, your spouse or common-law partner (the annuitant) should complete Form T2205, Amounts from a Spousal or Common-law Partner RRSP, SPP or RRIF to Include in Income for ____.

Tax Tip
If you want to ensure that you do not have to include any amount in your income when your spouse or common-law partner withdraws funds from a spousal or common-law partner RRSP or spousal or common-law partner RRIF, make sure you have not contributed to any spousal or common-law partner RRSPs in the year your spouse or common-law partner withdraws the funds, or in either of the two preceding years. Otherwise, you (the contributor) will probably have to include in your income the funds your spouse or common-law partner (the annuitant) withdraws.[/QUOTE]
Deal Addict
Mar 8, 2013
2951 posts
1611 upvotes
georvu wrote: So to be sure I understand:

2015: Contribute 20k Spousal RRSP... can not withdraw until 2018... if before 2018 then considered income for contributor [higher earner in example in this thread]
2016: Contribute 20k Spousal RRSP... can not withdraw until 2019... if before 2019 then considered income for contributor [higher earner in example in this thread]
2017: Contribute 20k Spousal RRSP... can not withdraw until 2020... if before 2020 then considered income for contributor [higher earner in example in this thread]

Or am I misunderstanding and once higher earner contributes in 2015 can not contribute for three more years if spouse [lower earner] going to withdraw from Spousal RRSP in 2018?
If only withdraw up to amount contributed in 2015 would that be ok i.e. waiting three contribution years before withdrawing funds?

Yeah, think more confused now. Sorry all. :o

Thanks for clarifying.
As soon as the 2016 contribution was made, the 2015 contribution goes along with it - must wait until 2019 to withdraw any in order to be taxed at the spouse's lower rate. It's not a loophole, it's a method of income splitting for retirement.
Deal Addict
Jan 7, 2014
2722 posts
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Manitoba
akaManny wrote: As soon as the 2016 contribution was made, the 2015 contribution goes along with it - must wait until 2019 to withdraw any in order to be taxed at the spouse's lower rate. It's not a loophole, it's a method of income splitting for retirement.
Thanks this was news to me.
I was under impression that the the amount contributed in 2015 can be withdrawn in 2018 even if further contribution was made to the spousal plan in 2016 , 2017 and onwards.
Didn't know that one can not withdraw( in order to be taxed at lower rate of spouse) any amount till the 3 years from the last contribution has passed by.
Sr. Member
Sep 9, 2012
623 posts
156 upvotes
Edmonton
OttawaGardener wrote: Just to be clear... there can be NO contribution to ANY spousal plan in the 3-year period. So the "high earning member (who) contributes to spousal RRSP every year ... and after 3 years she withdraws the amount", your scenario won't apply if the husband continues to contribute every year. You probably already realize this, but just in case, it doesn't hurt to reiterate it!

Edit: add link http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... l-eng.html
Good post. The 3 year window resetting with contributions is easy to miss.
Deal Addict
Mar 8, 2013
2951 posts
1611 upvotes
Asker123 wrote: Thanks this was news to me.
I was under impression that the the amount contributed in 2015 can be withdrawn in 2018 even if further contribution was made to the spousal plan in 2016 , 2017 and onwards.
Didn't know that one can not withdraw( in order to be taxed at lower rate of spouse) any amount till the 3 years from the last contribution has passed by.
I'm going by the CRA example:
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs ... l-eng.html

Actually, from this example, it could be interpreted that the growth in the RSP (amount beyond the contributions) can be included in the lower rate spouse's income.

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