Spousal rrsp's are confusing to many but, when understood, can be a powerful tax mitigation tool.
Spousal RRSP Explained:
- It is an rrsp set up by a spouse( common-law or married) which you contribute
- Contributions are based on your limit therefore you claim the tax deduction
- All investment decisions are made by the spouse since they are the legal owner
- All withdrawls decisions are also made by the spouse
- Major benefit is the abilty to split income subject to CRA attribution rules
Using Spousal RRSP's to Split Income:
- Best suited for couples with one in a lower marginal tax bracket
- Contributor can decide how much to put in the plan and when to contribute ( current year or next )
- Using latest notice of assessment determine your contribution room available. Contribute to the spousal,claim the deduction and the spouse will have future withdrawls taxable to them when the three year attribution rule expires. The contributions are the property of the spouse which may have consequences in a divorce.
If you stay within the attribution rules, the spousal rrsp is a very useful financial planning vehicle that shouldn't be overlooked.