Saturday, May 7, 2011

Spousal RRSP withdrawal Rules

When you withdraw funds from your RRSP, the amount is taxable income for you for that year and the financial institution that is holding\held your RRSP will issue T4RSP in your name and you will include in your income for that year.  But the rules are different for spousal RRSPs. The income may be attributed to the contributor in certain scenarios.
o        If a contribution is made in the year the annuitant of the  withdrawal, or in the two years prior years before the withdrawal, the contributing spouse is required to include in his or her income the lesser of,
·         The amount withdrawn, or
·         The amount contributed by the contributing spouse for those years (that is, the year of withdrawal plus the two preceding years).
o        the same rule applies if the withdrawal and contribution are made in the same year but the contribution is made after the withdrawal.
o        If the contributing spouse made no contributions in the year of the withdrawal or the preceding two years, the withdrawal is taxable in the hands of the annuitant. 
o        The attribution does not apply in the event of:
·         Marriage breakdown
·         Death of the contributing spouse

For example David and Hilary are married couple and opened a spousal RRSP in Hilary’s name (Hilary is the annuitant and David is the contributor) in 2010 at TD bank. David contributed $2000 in 2010 and Hillary withdrew $1500 in 2011 March. TD bank will issue T4RSP slip in Hilary’s name in early 2012 for year 2011 for $1500. Even though, the T4RSP tax slip will be issued in Hilary’s name the amount is taxable income for David and should be included in David’s 2011 income.

1 comment:

Anonymous said...

Thanks for clearing that up. Hopefully Hilary is smart enough to not add the $1500 to her own income as well.