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Discussion Starter #1
What are the rules around withdrawing and then depositing spousal RRSPs.:confused:

Quick senerio, my wife makes less than 37k, trying to pay less taxes without breaking the rules.

PLAN SO FAR: We put $25k in spousal RRSP in my wifes name. We have waited 3 years without putting any additional into the spousal RRSP.

PLAN NEXT STEP: Withdraw the funds this fall to bring her income up to the the 37k mark to get the best tax rate. The RRSP withdrawal will add to her 2010 income.

PLAN FINAL STEP: put the money back into a spousal RRSP in January 2011 (a different calender year) and reduce my taxable income in 2010 (the same taxation year).

FUTURE PLAN: repeat this process every three years until I run out of RRSP room.

The timing is what I worry about. The wording around calendar year and not tax year. I have called and asked two federal tax info agents and both agents I have spoke to say I am doing this right.

Hoping that all the tax experts out there are not all on summer vacation.

Side note: I will have a good pension and will retire with minimum $75k per year, so the likelihood of a lower tax margin after retirement is slim. And to make you financial types feel better, the tax return will be used maximize our Questrade TFSA account.:rolleyes:
 

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We don't need any of that. He just wants to know if he's going to get his fingers snapped if he withdraws from the cookie jar before he's allowed to without penalty (i.e., he's not actually asking for retirement planning advice).

What you are planning is a relatively arduous form of income-splitting with your spouse -- shifting income from his high bracket to her lower bracket. There are other, simpler ways to do this - a spousal investment loan is likely the cheapest and most effective.

In addition, in order for what you've proposed to work best, you will need the assets to be relatively risk-free - which is likely at odds with your long-term retirement investing goals. (If, indeed, you are going to use this spousal RRSP for retirement income for your spouse, and not just income-splitting while you are both working.)

Is the ultimate goal of this strategy just income-splitting? If yes, have you considered other ways to reach this goal?
 

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The attribution rule applies if you make a spousal contribution in the same calendar year in which the withdrawal is taken, or either of the two prior calendar years. Therefore, your proposed timing should be fine. This is not something you can repeat on a 3 year cycle however, you will need a 4 year cycle ... three calendar years with no contributions, then one calendar year with a contribution, then rinse and repeat.

I wouldn’t be too sure about ruling out a lower tax rate in retirement ... the arbitrage you’d gain out of this maneouver might more than offset that, or it might not ... hard to say without knowing more.
 

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I wonder if the OP might not get trapped by SS. 74.1(1) of the ITA in that the lower income spouse is transferring the funds withdrawn from the spousal to the higher income spouse to recontribute into the spousal plan to reduce his contribution room (recycling of the contribution).

Also wonder if S. 245 might not come into play.

A spousal loan indeed seems to be a safer way to go in order to avoid these nasty provisions whether its the recycled funds or otherwise.
 

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Billiam: I've never heard of anyone getting caught with those specific provisions after this manoeuvre. However, IF you did this, you'd need to keep very clear records to show that the contributions are NOT being recycled.

There are still other ways, even simpler than spousal loans, to effectively split income pre-retirement - another way is to have the higher-earning spouse pay all household expenses, and the lower-earning spouse to invest his/her salary.
 

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However, IF you did this, you'd need to keep very clear records to show that the contributions are NOT being recycled.
But it is being, right?
Isn't that what the OP is proposing to do?
i.e. withdraw from spousal plan in Dec (say) and put exact amount into self plan in Jan. to claim tax deduction for that year.
 

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Yes, HC, I concur. However, strictly speaking, in order to avoid any possible GAAR invocation you would need separate accounts and no mingling of the dollars. A huge PITA in my view, and I doubt the strategy is actually putting the OP at risk. However, I think it is probably not an optimal strategy for other reasons - mostly that it is not that efficient.
 

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Sec 74.1(1) of ITA wouldn’t apply in this case ... income generated within an RRSP is not taxable in either party’s hands, so there’d be nothing to attribute.
Sec 245. might, but I expect it’d be a tough sell on CRA’s part, and it should be relatively easy to break the line of traceability between her withdrawal and his later contribution. Low risk strategy, IMO. The bigger question, for me, is whether this is the best use of the available RRSP contribution room.
 

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Discussion Starter #11
more details

I thought the goal of RRSP was a method of delaying the taxation of income to a future date when the tax payed would be less. My current tax rate in Ontario is 46%. My wife's will only be 20%.

Assuming that we can split my pension, we will both be over 37k thru out retirement, and at todays rates will be in a 24% tax rate.

Withdrawal will go into other investments in her name (so income to be generated in her name only) and the new RRSP will come out of our investments (income currently in both names).

Thanks for this discussion and information.
 

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Discussion Starter #12
additional info

There are a lot of things that are missing, such as your age, current savings, projected amount of money required, etc.

Me 43 (computer consultant) income >125k
Wife 41 (occational teacher) income <25k
Savings (not sure how to answer, is there a form to follow, what to include, money at hand, investments, etc.. ??)
Owe nothing at the moment, but have borrowed to invest when needed.

With my pension, I only have approx 3k-4k to put in an RRSP per year, so it takes me a few years to build up.
 

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I'll defer to those of you who've thought this over, but my point of view would be the money made inside the RRSP is tax-sheltered, until it's pulled out. I would say that if you can keep the money in the RRSP, it'd be preferred to do so.

I see the point that it's better to flow some money through a spousal RRSP, but like the others ... I would think the attribution rules may be called into question, if you repeatedly do this. I remember reading in 101 Tax Secrets for Canadians, that they specifically said, sure do it a few times, but if you repeatedly do this, there has been a case where CRA has gone to the tax courts and won, because it was an obvious flow through instead of a 1 or 2-off occassion.
 
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