The contributing spouse is limited by their own RRSP room, and the tax deductions are claimed on the tax return of that contributing spouse. And the contributing spouse may also save within their own individual RRSP.
The owner of the account makes the investment decisions, and the account is in their name. It’s important to note that in some provinces, individuals keep the assets in their name when they have a relationship breakdown in a common-law union. That’s because common-law partners are treated like married couples in some provinces, while in other provinces—like Ontario—it’s more of a “what’s yours is yours, and what’s mine is mine” approach, and whose name an asset is held in is generally more important for common-law partners than legally married spouses.
For example, in Ontario, if someone contributes to their common-law partner’s RRSP, they may be “giving away” money in the event of a relationship breakdown that the person would not have otherwise been entitled to receive. It gets more complicated, because the contributing partner could have a case for unjust enrichment. In other words, if someone contributed more to a joint asset or the other spouse’s asset (RRSP, house, business), there may be a case for making things even. Resolving these issues is messy in some provinces.
What are the benefits to holding spousal RRSPs?
Spousal RRSPs can be helpful for people who are saving for a first home. If one spouse has a lower income or does not work, the higher-income spouse can contribute to a spousal RRSP. The Home Buyers’ Plan (HBP) allows withdrawals of up to $35,000 to use towards the purchase of an eligible home. A spousal RRSP could allow a couple to double the potential withdrawal from $35,000 to $70,000 and get higher tax refunds on contributions. Spousal RRSP attribution rules that generally apply to withdrawals are not applicable to the HBP. (Attribution is discussed in more detail below.)
A key benefit of a spousal RRSP is that withdrawals are generally taxed to the account owner, not the contributor. If one spouse’s income or assets are higher than the other, a spousal RRSP can help equalize retirement assets and future income.
A taxpayer who is 72 or older can no longer contribute to their own RRSP—but if their spouse is 71 or younger and has a spousal RRSP, the older contributor can continue to claim tax deductions if they have existing RRSP contribution room or continue to generate new room from earned income.
Can you own a spousal RRSP and an individual RRSP?
The owner of a spousal RRSP may be able to contribute to their account themselves and claim a personal RRSP tax deduction. Despite it being a spousal RRSP, the institution where it’s registered may be able to issue a personal tax slip. This could be a simpler solution than maintaining both a spousal and a personal RRSP account.
A spousal RRSP and a personal RRSP can be combined, and a personal RRSP can be transferred on a tax-deferred basis into a spousal RRSP, but not the other way around. The result is that combining a spousal and personal RRSP always results in a spousal RRSP.