Attribution rules on money given to spouse for RRSP

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Mouly
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Attribution rules on money given to spouse for RRSP

Post by Mouly »

Mr Cestnick reprinted this column this week:

https://www.theglobeandmail.com/globe-i ... cle621653/

It's about how if Spouse One gives money to Spouse Two to make an RRSP contribution then at withdrawal time the tax payable is attributed to Spouse One.

How does that work at withdrawal time? Is it the next time a withdrawal is made, regardless of how many non loan contributions were subsequently made by Spouse Two? How would the gov't catch such a situation and declare it occurred? And when would they make that declaration, at the time of contribution or the time of withdrawal? That seems messy if the withdrawal is twenty years down the road. Or is this head off situations such as a contribution made this year and then withdrawn the next.
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Re: Attribution rules on money given to spouse for RRSP

Post by OptsyEagle »

The quick answer. I don't know.

I noticed one time when reading CRA's rules on RRSPs that they called a "spousal RRSP" any RRSP where the spouse makes the contribution.

I would think that any contribution from anyone going to a personal RRSP would have been a personal contribution by the owner of that RRSP. Any contribution from anyone going to a spousal RRSP would have been considered a spousal contribution. In reading their rules I would be wrong.

I am just not sure that most of the financial institutions in Canada ever read those rules or perhaps I am reading them wrong. If I am right, then the financial institutions should be keeping a closer eye on who owned the account where the money came from...not just who owns the account on where the money is going to.

So to answer your question, and I did not read the G&M article that you pasted, Tim Cestnick is probably right, but almost no financial institution is going to issue the contribution receipts that way. I suppose in an audit there could be a problem but it would be a problem with many Canadians.

Personally, my wife and I keep separate bank accounts. It keeps household harmony a little more manageable. She looks after food, hydro, etc. and I look after investments. I have made many, many, many personal RRSP contributions from my personal chequing account to my wife's personal RRSP. The RRSP administrator received those funds happily and issued RRSP contribution receipts in the name of my wife, every single time. I have never had a problem. I have also recently made withdrawals from her account and she was issued the T4 RSP.

So what can I say.
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Re: Attribution rules on money given to spouse for RRSP

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To my knowledge, you are not supposed to contribute your personal funds to a spouse to fund her personal RRSP without going through a spoisal loan process. That's becasuse you cannot 'gift' your spouse money attribution free. You can fund a spousal RRSP and you get the tax deduction. The FI isn't going to ride policeman on whether you are following the ITA. That is your obligation.
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Re: Attribution rules on money given to spouse for RRSP

Post by Insomniac »

AltaRed wrote: 09 Feb 2018 12:55 To my knowledge, you are not supposed to contribute your personal funds to a spouse to fund her personal RRSP without going through a spoisal loan process. That's becasuse you cannot 'gift' your spouse money attribution free. You can fund a spousal RRSP and you get the tax deduction. The FI isn't going to ride policeman on whether you are following the ITA. That is your obligation.
That's the official line.

Many years ago, I paid all the household bills, so my wife could invest all her net income.
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Re: Attribution rules on money given to spouse for RRSP

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That is how I would do it to be onside.
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Re: Attribution rules on money given to spouse for RRSP

Post by StuBee »

Interesting article. What about the following scenario?:

The higher income earner opens a spousal RRSP. The higher income earner is the contributor and receives the income tax deduction and the lower income earner is the beneficary and eventually all withdrawals will be taxed at his (or her) MTR.

What happens if the lower income earner were to give money to make a contribution to the spousal RRSP?

Following Cestnick's argument, probably the spousal RRSP is considered as the beneficiaries (i.e. the lower income earner) property and all income is to be attributed to the beneficiary (even if the contributions come from both spouses).

In other words by definition property contributed to the spousal RRSP by the (official) contributor is considered to belong to the beneficiary and therefore income from it will not be attributed back to the (official) contributor. AND if property is contributed by the beneficiary (i.e. not the official contributor) then the attribution of the income to this "wrong" contributor will still cause the income to be taxed in the beneficiaries hands.

Perhaps the government could turn around and declare the contributions as illegal, deny the tax deduction and deny (retrospectivly) all of the taxfree growth...
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Re: Attribution rules on money given to spouse for RRSP

Post by Mouly »

Well I'm coming at this from the angle that I have a joint bank account with my wife and money is fungible. In a situation like that how can you say whose money went into the RRSP? If the response is that you should have separate bank accounts then that means any married couple should never have a joint account if they contribute to RRSPs because that'd mean it could never be clear whose money went where. I guess banks would like that interpretation so that they could get double the fees from all couples.
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Re: Attribution rules on money given to spouse for RRSP

Post by StuBee »

Mouly wrote: 09 Feb 2018 16:38 Well I'm coming at this from the angle that I have a joint bank account with my wife and money is fungible. In a situation like that how can you say whose money went into the RRSP? If the response is that you should have separate bank accounts then that means any married couple should never have a joint account if they contribute to RRSPs because that'd mean it could never be clear whose money went where. I guess banks would like that interpretation so that they could get double the fees from all couples.
If the article is to be taken seriously, then in the case that you describe all contributions would be considered as made of a part of your "property" and a part of your spouses "property". This can be quite easily calculated on the basis of how much (in any given year) each of the two account holders deposited into the joint account.

OTOH, I doubt that this has ever been an issue that has preoccupied the CRA.
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Re: Attribution rules on money given to spouse for RRSP

Post by adrian2 »

Mouly wrote: 09 Feb 2018 16:38 I guess banks would like that interpretation so that they could get double the fees from all couples.
Zero doubled is still zero.
All my life I've never paid bank fees.
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Re: Attribution rules on money given to spouse for RRSP

Post by twa2w »

While Mt Cestnick may be right in theory, there is no way to track this in practice.
Obviously if a spouse has cintribution room, they had earned income and potentially had funds to contribute to an RSP.
Imagine a couple contributing to RSPs over 30 years or more which is not unreasonable. Some contributions came from the RSP holder and some came from the spouse depending on who had available funds at the time.
How much of a subsequent withdrawals at RIF time would be attributed to which spouse?
How would you or CRA even know who had made the contribution 30 years ago.29 years ago 28 years ago etc.
Is a tax payer expected to keep track?

Maybe in a situation where there was a late in life marriage. if the new spouse had huge contribution room and the rich spouse gives the new spouse enough to catch up 30 years of contribution room in order to tax shelter and split future income. This might raise a flag at CRA if they caught it in an audit.
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Re: Attribution rules on money given to spouse for RRSP

Post by OhGreatGuru »

As Insomniac suggests, it rather depends on the size of the contribution in relation to spouse's income. If spouse1 has no income, or if the RRSP contribution exceeds spouse1's disposable income, it will be clear to CRA that the money must have come from another source. But in the normal course of things CRA cannot decide how family a should divide its budget. So if spouse1 puts all their income into RRSP one year, and spouse2 carries the family living expenses, that is a personal budget decision that they cannot really dispute.

Mind you, if spouse1 has little income, the tax deduction for the contribution is of no immediate use to spouse1. So a TFSA contribution would be a better strategy for spouse1 (there is no attribution rule for this); and a spousal RRSP contribution would be a better strategy for spouse2, if spouse2 has the RRSP room.

As twa2w suggests, if there are accumulated savings to which spouse 1 contributed, that could also be used. But the paper trail is a little more difficult to demonstrate to CRA if they see a tax return claiming $10K RRSP contribution on $5K of income.
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Re: Attribution rules on money given to spouse for RRSP

Post by patriot1 »

OhGreatGuru wrote: 10 Feb 2018 20:14 If spouse1 has no income, or if the RRSP contribution exceeds spouse1's disposable income, it will be clear to CRA that the money must have come from another source.
Gotta have income to get RRSP contribution room in the first place, to wit 18% of earned income. As for trying to figure out how "disposable income" gets allocated between spouses, good look with that.

I guess one could concoct some scenario where spouse1 worked for decades and put nothing in RRSP, and then spouse2 gave spouse1 enough money to cover all that accumulated room, and then spouse1 took the deduction. But it doesn't look like real life.
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