Spousal RRSP Contributions
Spousal RRSP contributions can be an effective income-splitting vehicle. They offer an opportunity for one spouse to contribute to an RRSP of the other spouse.
The contributing spouse receives a tax deduction for the amount of the contribution, while the receiving spouse enjoys the benefit of ownership of the contributed amount in his or her RRSP.
The total amount your client can deduct for contributions made to their spouse's or common-law partner's RRSP cannot be more than their RRSP deduction limit.
The contributions your client makes to a spousal (or common-law partner) RRSP reduce his or her RRSP deduction limit (available contribution room).
Snap Projections tracks all of that for you, automatically. Please note however, that accounts of type Spousal RRSP are currently not part of the automatic Cash Flow Management (CFM) contribution logic. You will need to make spousal RRSP contributions manually on the Planning page as detailed below.
In this article:
Adding a Spousal RRSP
Click Assets on the Planning page of the spouse. Select Add Capital Asset and choose the type Spousal RRSP for this asset.
Entering Spousal RRSP Contributions
On the Planning page of the spouse, you will see a new asset added with the title Spousal RRSP. In this screenshot, you can see there are 2 contribution columns. The first, labelled Contribution, is for Jane's own contributions and the second column, labelled Spousal Contribution, is for her husband John's contributions. The contributing spouse receives a tax deduction for the amount displayed under the Spousal Contribution column.
In this example, you can see the $10,000 contributions which are being made by the spouse, John. Make sure to run the scenario to update the calculations.
If you switch to the client's page, you'll see a column named Spousal RRSP Contribution. This column will show you the amount of the spousal contribution. It is shown under the Income section, which displays both income and expenses. The spousal RRSP contribution will reduce the amount of cash flow available for John. Any updates you make on one spouse's page will be reflected on the other spouse's page.
A reduction in taxable income by the amount of the spousal RRSP contribution occurs for the contributing spouse. In this example, John's taxable income is reduced. Make sure that John has enough RRSP contribution room at the beginning of the scenario. The receiving spouse benefits from the $10,000 per year contribution and there is no change to Jane's tax position. This is the desired outcome as the tax deduction is realized on the side of the contributing spouse.
Note: As a planner, you need to pay attention to and not withdraw any funds from the Spousal RRSP as the attribution rules may be triggered. For example, if the funds are withdrawn within 3 years of a contribution to a Spousal RRSP, all or part of the withdrawn amount will be taxed as income to the spouse who made the contribution. Snap does NOT track the attribution rule at this time. Instead, it will try to withdraw from any other asset before tapping into the Spousal RRSPs. This means that in the vast majority of cases, the attribution rules won't be ever triggered.
Spousal RRSP Contributions in the Report
In the Cash Flow Summary section of the report, spousal RRSP contributions are displayed under the Other Cash Flow column.
In this Cash Flow Summary table, only items that affect the individual's cash flow are displayed. Since the person who is contributing to their spouse's RRSP does not increase their own individual registered assets, the spousal RRSP contribution is displayed as Other Cash Flow.
On the Cash Flow Summary table for the spouse, there is no inflow for the registered assets either, since his/her cash flow is not affected by the contribution.
You will need to view the Net Worth Projections table for the spouse to see the increase in his/her RRSP balance as a result of the spousal contribution.