A guide to spousal RRSPs for married and common-law partners

Looking at it from the other side, a spousal RRSP can be converted to a personal RRSP in the event of a relationship breakdown or upon death of the contributing spouse. Typically, the account holder must wait until no contributions have been made to the account for three years. Although this conversion is not necessary, nor does it change the taxation or ownership of the account, some people may appreciate the opportunity to remove the spousal reference. 

Watch-outs to consider with spousal RRSPs

While withdrawals from spousal RRSPs are usually taxed in the hands of the account owner—the lower-income spouse—there can be situations where spousal RRSP withdrawals are taxed back to the contributor. 

There is a concept called spousal RRSP attribution. If a contribution is made to a spousal RRSP in 2019, 2020, or 2021, for example, and a withdrawal is taken in 2021, the income up to the amount of the contributions may be taxed on the contributor’s tax return. The income is “attributed” back to them. This three-year rule is important to remember as a couple approaches retirement or otherwise considers RRSP withdrawals. 

A spousal RRSP contribution made in January or February 2019—and reported on a 2018 tax return—is still considered to have been made in 2019 for attribution purposes if a 2021 withdrawal is taken. RRSP contributions in the first 60 days of the year get reported on the previous year’s tax return, but for spousal RRSP attribution purposes, it is the calendar year of the contribution that applies. 

Another consideration is that if a spousal contribution was made to any spousal RRSP in the past three years, spousal attribution could apply to a withdrawal from another spousal RRSP. So, attribution is not based on the specific account, but applies to all spousal RRSPs owned by a taxpayer and contributed to by their spouse. 

Converting a spousal RRSP to a RRIF

When a spousal RRSP is converted to a RRIF, it will remain a spousal RRIF. Attribution (see above) does not apply if only the minimum RRIF withdrawal is taken. Withdrawals that exceed the minimum may be subject to attribution, if contributions were made in the previous three years. In the year that a RRSP is converted to a RRIF, there is no minimum withdrawal required, so any withdrawals taken in that first year could be subject to attribution. 

Spouses can split their income in retirement using pension income-splitting on their tax returns. Up to 50% of eligible pension income—including RRIF withdrawals—can be transferred to the other spouse when a couple files their tax returns. This legislation was introduced in 2007 and, since then, spousal RRSPs have been less beneficial. 

However, only RRIF withdrawals after age 65 qualify. So, spousal RRSPs can help reduce tax for couples who retire early. 

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