# Spousal RSP



## jazzman (Dec 15, 2014)

Hi, 

I have a question about Spousal RSPs

I am single earner, my spouse is not currently working. I want to setup a spousal RSP and make contributions to it. I understand that I claim tax deduction and I also understand the 3 year rule.

Here are the questions:

1) After no contribution from me for 3 calendar years, if my spouse withdraws the money, at what rate will that withdrawal be taxed? Lets assume my spouse has 0 income during the withdrawal year. what would be the tax %?

2) My spouse and I, we submit our tax returns together (combined), so isnt it true that whatever is her income, it essentially becomes my income. For example, we receive UCCB money for our child. That money is taxable and my spouse shows it as income and we pay tax on it. I am assuming we would pay the same tax on UCCB money if I show UCCB money as income on my return. Am I wrong about that?

Thank you


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## stardancer (Apr 26, 2009)

jazzman said:


> Hi,
> 
> I have a question about Spousal RSPs
> 
> ...


See above


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## OptsyEagle (Nov 29, 2009)

Just an addition to the above. 

Conventional wisdom is that one's spouse is not taxed if their income is below the personal exemption amount of around $11,000. That is of course true. The tax problem for the family, however, is the reduction of your spousal tax credit due to your spouses income. For example, if she withdraws $5,000. She will pay no income tax on this income and receive back any withholding taxes the government collected from her, in that year. You, on the other hand, will lose exactly $5,000 of spousal tax credits, that will cost you an extra $1,000 of income taxes owed, that resulted directly from this withdrawal by your spouse.


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## Eclectic12 (Oct 20, 2010)

The info is generally good but I'll add a few details plus other things to consider.

Here is a link outlining the withholding tax the financial institution has to remit to CRA.
http://www.taxtips.ca/rrsp/withholdingtax.htm

One way around the withholding tax is to convert some/all of the spousal RRSP to a spousal RRIF. Just like one's own RRIF, the minimum withdrawal amount is not subject to the withholding tax.
http://www.taxtips.ca/rrsp/spousal-rrsp-rrif.htm

Where one's spouse's final income on the tax return does end up being zero - the RRIF may be of benefit. 

In case it isn't clear ... the RRSP withdrawal withholding tax is similar to the withholding tax one's employer remits to CRA on one's employment income. One ends up with less $$ on one's pay cheque where when the tax return if filed, the owing versus remitted amounts will be reconciled. Too much paid will generate a refund and too little paid will generate a tax bill.


Worst case to using the RRIF from what I can see is where some other form of income (ex. CPP, pension, investments) plus the spousal RRIF withdrawal $$$ reported as income results in taxes owing. In that case, one would have to come up with the money to pay the taxes when one files the tax return.


The other question I'd want to confirm is what timeframes "my spouse has 0 income" is possible for. 

The statement "my spouse is not currently working" suggests that at one point she was. If so, there may be pension income as well as CPP that starts increasing her income at some point. If she holds investments in a taxable account and/or has a personal RRSP - these are also potential changes in income level. The timeframe where these would come into play might affect one's decision on how much to withdraw in a given year.

Cheers


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## jazzman (Dec 15, 2014)

Thank you for all your responses.

My wife has never worked in Canada. She is learning English and we also have a 4 year old and we cannot afford day-care.

I was just trying to understand if there are any potential tax savings by contributing to spousal RSP. 

Someone mentioned this to me:

1) In December 2015 , I can open a spousal RSP and put 10K in it and then I will not make any more contributions.
2) In 2015 tax return, I report lower income due to this spousal RSP contribution and get a tax refund.
2) In Jan 2017 (3 calendar years), my wife withdraws that 10k from the RSP and pays low income tax on it or in some cases pay no income tax

I was just trying to underatand if there is any truth in the above situation


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## Eclectic12 (Oct 20, 2010)

Check out the tax credit info in post #3.

Then too - the withdrawal destroys the RRSP contribution room plus makes the withdrawn money taxable again. I'd want to check out what it could have been worth if withdrawn in retirement.

If she has plenty of TFSA contribution room - it might be worthwhile as taking the RRSP withdrawal then putting it into the TFSA would put back the ability for the $$ to grow tax free.


Just don't forget that a lot of RRSPs will charge a fee for making an RRSP withdrawal so factor that in as well.


Cheers


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## jazzman (Dec 15, 2014)

Thanks you all for your responses.

This is an excellent forum.


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## Guban (Jul 5, 2011)

Any money that comes out of a spousal RRSP means that you receive less of a spousal credit. This is true, but credits are worth 15% federally. If you are above the first tax bracket, your family still wins because the deduction you received for the contribution is worth more.

Also, some provinces allow the spouse to make a small amount without reducing the provincial spousal credit.


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