# Withdrawal from spousal RRSP



## Geo (Jun 2, 2010)

I have a question re spousal RRSP. From what I 've read both spouse (annuitant) and taxpayer may contribute to the spousal RRSP. That was excellently explained by Cardhu in one of his posts: http://www.canadianmoneyforum.com/showthread.php?t=128&page=2

Quote:" 13. A taxpayer may make RRSP contributions to a
spousal and partner RRSP and the taxpayer’s spouse or
common-law partner may also make contributions to that
same RRSP. "


In the situation when for the last 2-3 years only the spouse (annuitant) contributed to the RRSP and the he/she withdraws money within a year, who is responsible for taxes?

Thanks


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## MoneyGal (Apr 24, 2009)

Ah! The attribution rules. A favourite topic of mine. 

If your spouse withdraws from their spousal RSP within *three calendar years* of your last contribution to any spousal RSP, the withdrawal is treated as income on your personal tax return. 

If the withdrawal is made more than three calendar years after the contribution, the withdrawal is treated as income on your spouse's tax return. 

The important thing to note is that the three years are based on calendar years - not the date of the contribution or the withdrawal. 

So: if your last contribution was made in December 1998, a withdrawal is taxable as your income until January 2001.

In your case, in order for the withdrawal not to be taxed in the hands of the taxpayer (not the annuitant spouse), no contributions can have been made to the RRSP after December 31, 2006. 

However - it is important to note that the conditions that prevailed when the contribution was made may not have continued today, and having the withdrawn contribution attributed to the spouse may not be any worse than having it taxed in the hands of the annuitant: it just depends on what your relative tax positions are in the year of withdrawal.

Editing to add: Here is the CRA bulletin on this matter. Good luck - it's pretty dense.


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## Geo (Jun 2, 2010)

Thanks, MoneyGal!


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## cardhu (May 26, 2009)

Some of the above is misleading ... most people focus on how long its been since the “last” spousal contribution was made, but future spousal contributions can trigger attribution as well. 

Geo, the correct answer is ... a withdrawal from a spousal RRSP would be taxed in the annuitant’s hands, if ...

(a)	there have been no SPOUSAL contributions made, to any of the annuitant’s accounts, in the 2 prior calendar years, and 
(b)	there will be no SPOUSAL contribution made, to any of the annuitant’s accounts, in what remains of the calendar year in which the withdrawal is made.

Contributions made by the annuitant are not spousal contributions, and have no effect on attribution.


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## MoneyGal (Apr 24, 2009)

Cardhu is correct. Thanks for the detailed clarification.


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## OhGreatGuru (May 24, 2009)

Good arguments for not combining spousal and personal RRSPs. even though it is allowed.


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## Four Pillars (Apr 5, 2009)

OhGreatGuru said:


> Good arguments for not combining spousal and personal RRSPs. even though it is allowed.


I agree. I think it would be easier for everyone if you weren't allowed to combine spousal and regular RRSPs.


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## jmalias (Aug 10, 2010)

*need to be sure*



cardhu said:


> Some of the above is misleading ... most people focus on how long its been since the “last” spousal contribution was made, but future spousal contributions can trigger attribution as well.
> 
> Geo, the correct answer is ... a withdrawal from a spousal RRSP would be taxed in the annuitant’s hands, if ...
> 
> ...




I plan on doing the same as you indicated. but I still have doubts.

I have posted a new thread, hopefully you will find it and post your thoughts.


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## cardhu (May 26, 2009)

I found your new thread.
The attribution rules are very clear ... there is no ambiguity whatsoever in the 3 year period that triggers attribution, nor in the kinds of contributions that trigger it. 
How much value there might be, in doing what you propose, is another question.


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## frankied53 (Jan 7, 2011)

Found this old discussion which seems to be relevant to my situation, so here goes. 

My wife and I are both working, but I am in a higher marginal tax bracket.
We have purely a spousal RRSP (I am the contributor, she is the annuitant) to which I made the last contribution in 2008. So a withdrawal in 2011 would not attribute back to me, but would add to my wife's 2011 income (as long as no spousal contributions are made to her plan this year).

Can we simply withdraw say $25K from the plan now, invest it for a year, and then have me put the $25K back into her spousal plan next year next January, as a 2011 RSP contribution? The the tax refund generated for me for 2011 at my tax rate could be partly used (later) to cover her additional 2011 tax that will be owing, with of course some 'extra' cash generated by this available for immediate use or investment, due to our different tax brackets.

Does this make sense and are there any holes in this plan?

Frank


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## jmalias (Aug 10, 2010)

frankied53 said:


> Found this old discussion which seems to be relevant to my situation, so here goes.
> 
> My wife and I are both working, but I am in a higher marginal tax bracket.
> We have purely a spousal RRSP (I am the contributor, she is the annuitant) to which I made the last contribution in 2008. So a withdrawal in 2011 would not attribute back to me, but would add to my wife's 2011 income (as long as no spousal contributions are made to her plan this year).
> ...


This is exactly our plan..
My salary is over 100k and taxed higher than my spouse.
My wife's income as a supply teacher is up and down.
In December 2010 she withdrew 10k to bring her income to 37k.
Her 10k goes into her dividend stocks.
In Jan/Feb 2011 I will transfer 16k of my investments into a spousal RRSP and max my RRSP.
I will spend the next 3 calendar years to save up again for this.

Every fourth year, we will repeat the process, until i retire..or until she consistently starts to earn more than our planned split pension.


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## jmalias (Aug 10, 2010)

*and*

I am unsure why anyone would NOT withdraw funds out of a RRSP if they were in the lowest tax bracket. The plan is to defer tax. At some point you need to pay tax on the original investment and income generated. Why not pay the least possible. Especially if you had room in your TFSA.

Correct me if i am wrong...


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## MoneyGal (Apr 24, 2009)

We've discussed various forms of this over the months in this forum. 

What you are describing is a form of spousal tax arbitrage, in which funds are washed over from one spouse to the other while contributing at a higher tax deduction rate and withdrawing at a lower rate. 

If you are in the lowest bracket and aren't doing this (or some other related form of tax arbitrage) then you probably shouldn't be contributing to RRSPs in the first place.


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## frankied53 (Jan 7, 2011)

Thanks for the feedback and reassurance that my plan is sound. It will be slightly modified though...Since we are making my wife's RSP withdrawal early in the year, I will be unable to contribute to her RSP for the rest of this year, based on the attribution rules. So rather than wait out the entire year to get the funds back into the spousal RSP, I will just put the funds into a new RSP account in my name. I have the contribution room, and our entire RSP investment is currently purely in the spousal plan.

Frank


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