How do spousal RRSP contributions and attribution rules work in Canada?

A spousal RRSP is an RRSP registered in your spouse's or common-law partner's name, but you (the contributing spouse) make contributions and receive the tax deduction. This is a powerful income-splitting strategy for retirement.

How spousal RRSPs work:

• The contributing spouse claims the tax deduction for the contribution.
• The contribution uses the contributing spouse's RRSP deduction limit, not the annuitant spouse's limit.
• The annuitant spouse (the account holder) owns the funds and controls investment decisions.
• At withdrawal, the annuitant spouse reports the income on their tax return, subject to attribution rules.

The three-year attribution rule:

This is the most important rule to understand. If the annuitant spouse withdraws funds from the spousal RRSP within three calendar years of the last contribution by the contributing spouse, the withdrawn amount is attributed back to the contributing spouse and taxed in their hands.

Example:

• You contribute C$5,000 to your spouse's RRSP in January 2024.
• If your spouse withdraws any amount before January 1, 2027, the withdrawal (up to the amount contributed in the prior three years) is taxed as your income, not your spouse's.
• If your spouse waits until 2027 or later to withdraw, the income is taxed in their hands.

Benefits of spousal RRSPs:

• Equalize retirement income between spouses to reduce the overall family tax burden.
• Particularly useful if one spouse earns significantly more than the other.
• The lower-income spouse can access the funds in a lower tax bracket during retirement.

Important notes:

• The three-year rule is based on calendar years, not a rolling 36-month period.
• Mandatory minimum RRIF withdrawals are exempt from the attribution rule.
• Spousal RRSPs must be converted to a RRIF or annuity by the end of the year the annuitant turns 71.