Spousal RRSP

A spousal RRSP is another type of Registered Plan. In which the person who is in a higher tax bracket and who qualifies for a larger tax refund can deposit into an RRSP for a lower income or non-working spouse.

This gives the higher income depositor the tax refund while providing a vehicle for the spouse (in a lower tax bracket) to accumulate retirement savings.

Once an individual makes the deposit to their spouse's RRSP--that cash instantly becomes the property of the spouse who owns the RRSP-- period!!

The government understood that people would try to abuse the program by having the higher income spouse make a deposit to the lower income spouse’s RRSP, get the tax deduction and then have the lower income spouse withdraw the cash at the lower tax rate.

To prevent is -- Canada Revenue Agency (CRA) has a 3 year rule. Which states withdrawals made before 3 years of inactivity will have the tax liability attributed back to the depositor. This effectively negates any abuse of the program and prevents someone in a higher tax bracket from getting the money out at their lower tax rate.

After 2 years and 1 day of inactivity in the account -- either withdrawals or deposits. The spouse who owns the account can withdraw cash at their lower Marginal Tax Rate (MTR).

Return from Spousal RRSPs to Reitrement Savings Accounts