Income Attribution on Spousal Plans
Contributing to a spousal RRSP is an effective income-splitting strategy targeted at maximizing after-tax income throughout retirement. To prevent misuse of these types of registered plans, attribution or "anti-avoidance" rules apply. Depositing funds to a spousal RRSP creates the possibility of income attribution when funds are withdrawn.
Note that, while the following material refers to a "spouse" and "spousal plan" for simplicity, these rules apply equally to registered plans for common-law partners.
RRSP attribution: Attribution occurs when funds are withdrawn from a spousal RRSP, to the extent the contributing spouse made deductible contributions to a spousal plan in the year of the withdrawal or in one of the two immediately preceding taxation years. The fact that there are several spousal plans does not alter the application of the attribution. Attribution takes into consideration the contributions to any spousal plan rather than to a specific spousal plan.
The income attributed back to and taxed in the hands of the contributing spouse is the lesser of the amount withdrawn and the total contributions made by the contributing spouse to all spousal plans in that year and in the two immediately preceding taxation years.
Contributing spouse makes spousal RRSP contributions of $5,000 in each of February 1997, 1998 and 1999. A $15,000 withdrawal is made from the spousal RRSP in June 2000.
Attribution is the lesser of the withdrawal ($15,000) or the contributions made in the current and preceding two years ($10,000).
Therefore, the contributing spouse would include $10,000 in income for the year of withdrawal. The fact that the 1998 contribution may have been claimed as a deduction for the 1997 taxation year does not change that result. The $5,000 balance of the withdrawal is taxable to the spouse who is the annuitant under the plan.
RRIF attribution: A spousal RRIF is any RRIF that received funds or property from a spousal RRSP. Thus, once a spousal plan, always a spousal plan, and the rules of attribution follow. If a non-contributing spouse begins to receive payments as the annuitant from a spousal RRIF within three years of any deductible contribution having been made to any spousal plan, income attribution may apply.
The income subject to attribution us the amount withdrawn that is above the minimum required withdrawal amount. For example, if the minimum RRIF withdrawal is $3,000 but the annuitant withdraws $5,000, the difference between the amount withdrawn and the RRIF minimum for that year ($5,000 less $3,000 = $2,000) is subject to attribution.
The annuitant spouse includes the minimum amount in income for the year. In the year the RRIF is purchased, there is no required minimum amount, and the attribution rules apply to the full amount withdrawn.
After the three-year window has passed (current plus two previous years), no further attribution applies.
Exceptions: The attribution rules for RRSPs and RRIFs do not apply if, at the time of payment or deemed receipt:
- the taxpayer and spouse were living separate and apart because of breakdown in their relationship;
- the taxpayer or spouse was non-resident;
- the funds were transferred directly, in the name of the non-contributing spouse, to another RRSP or RRIF, or to purchase an eligible annuity; or
- the payment was an annuity payment from an eligible annuity.
Attribution does not apply if the contributing spouse dies in the year the RRSP or RRIF payment is received by the non-contributing spouse (annuitant).
TOP | BACK