Spousal / Common-Law RRSP Tax Structure

Spousal/Common-law Partner RRSP

You may want to set up a spousal or common-law partner RRSP since this type of plan can help ensure that retirement income is more evenly split between both of you. The benefit is greatest if a higher-income spouse or common-law partner contributes to an RRSP for a lower-income spouse or common-law partner. The contributor receives the short-term benefit of the tax deduction for the contributions, while the annuitant, who is likely to be in a lower tax bracket during retirement, receives the income and reports it on his or her income tax and benefits return.

What is a spousal or common-law partner RRSP?

A spousal or common-law partner RRSP is any of your RRSPs:

    • to which your spouse or common-law partner contributed;
    • that received payments or transfers of property from your RRSPs to which your spouse or common-law partner had contributed; or
    • that received payments or transfers of property from your RRIFs to which you had transferred amounts from your spousal or common-law partner RRSPs.

Generally, only the individual who is entitled to receive payments from the RRSP (the annuitant) can withdraw funds from an RRSP.

Contributions you make to a spousal or common-law partner RRSP reduce your RRSP deduction limit. The total amount you can deduct for contributions you make to your RRSP or your spouse’s or common-law partner’s RRSP cannot be more than your RRSP deduction limit.

How much can I contribute and deduct?

You can find your registered retirement savings plan (RRSP)/pooled registered savings plan (PRPP) deduction limit, often called your “contribution room” by going to:

      • Form T1028, Your RRSP/PRPP Information for 2016 (CRA may send you a Form T1028 if there are any changes to your RRSP/PRPP deduction limit since your last assessment.)
      • My Account
      • MyCRA mobile app
      • Tax information Phone Service (TIPS)
      • The “Available contribution room for 2016” amount found on the RRSP/PRPP Deduction Limit Statement, on your latest notice of assessment or notice of reassessment (see image below)

December 31 of the year you turn 71 years old is the last day that you can contribute to your RRSPs. If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse’s or common-law partner’s RRSP until the end of the year he or she turns 71.

Can I make contributions to a deceased spouse or common-law partner’s RRSP?

No contributions can be made to a deceased individual’s RRSP after the date of death. However, the deceased individual’s legal representative can make contributions to the surviving spouse’s or common-law partner’s RRSP in the year of death or during the first 60 days after the end of that year. Contributions made to a spouse’s or common-law partner’s RRSP can be claimed on the deceased individual’s income tax and benefit return up to that individual’s RRSP deduction limit for the year of death.

For example, Dave died in August 2015. His 2015 RRSP deduction limit is $7,000. Before he died, Dave did not contribute to either his RRSP or his wife’s RRSP for 2015. His wife Paula is 66 years old in 2015. On Dave’s behalf, his legal representative can contribute up to $7,000 to Paula’s RRSP for 2015. The legal representative can then claim an RRSP deduction of up to $7,000 on line 208 of Dave’s 2015 final income tax and benefit return.

If you contributed amounts to your spouse’s or common-law partner’s RRSP in 2014, 2015, or 2016, you may have to include in your 2016 income all or part of the amount your spouse or common-law partner withdrew in 2016 from his or her spousal or common-law partner RRSP.

How to calculate the income my spouse or common-law partner and I should report?

If you contributed to any spousal or common-law partner RRSP or your spouse’s account under an SPP in 2014, 2015 or 2016, you may have to include in your 2016 income all or part of:

    • amounts your spouse or common-law partner received in 2016 from any of his or her SPPs or unmatured spousal or common-law partner RRSPs;
    • commutation payments your spouse or common-law partner received in 2016 from any of his or her SPPs or matured spousal or common-law partner RRSPs;
    • amounts we consider your spouse or common-law partner to have received in 2016 from any of his or her SPPs or deregistered spousal or common-law partner RRSPs; and
    • amounts your spouse or common-law partner received, or those we consider he or she received, in 2016 from any of his or her spousal or common-law partner registered retirement income funds (RRIFs) that are more than the minimum amount for the year.

Use Form T2205, amounts from a Spousal or Common-law Partner RRSP, RRIF or SPP to Include in Income, to determine how much to include in your and your spouse’s returns.

Are there any exceptions?

The rule that requires you, the contributor, to include certain amounts from spousal or common-law partner RRSPs, spousal or common-law partner RRIFs or, a spouse’s account under an SPP as income does not apply to the following situations:

    • At the time of payment, or when we consider the payment to have been received, you and your spouse or common-law partner were living separate and apart because of the breakdown of your relationship.
    • At the time of payment, or when we consider the payment to have been received, you or your spouse or common-law partner were non-residents of Canada.
    • The amount is a commutation payment that is transferred directly for your spouse or common-law partner to another RRSP, a RRIF or an SPP or to an issuer to buy an eligible annuity that cannot be commuted for at least three years.
    • The contributor dies in the year of payment or the year we consider the payment to have been received.
    • We consider the deceased annuitant to have received the amount because of death.

In any such case, the annuitant spouse or common-law partner includes the payment in income for the year he or she receives it or is considered to have received it.

In all cases, the tax deducted has to be claimed by the individual to whom the slip is issued. In most cases, the information slip issued for the withdrawal will be in the name of the annuitant. However, report the income according to the calculations completed in Parts 1 and 2 of Form T2205.

Sources and References:

  1. Canada Revenue Agency – Contributing to your Spouse’s or Common-law Partner’s RRSPs

Want to know more about Spousal RRSP and how it can help you save on taxes? Do you have any tax-related queries? Need assistance with tax planning and filing your tax returns? We can help! Contact us today!