Spousal RRSP Three-Year Attribution Rule Explained

A spousal RRSP is meant to move retirement income from a higher-income spouse to a lower-income one. That only works if the money stays in the plan long enough. If you and your spouse or common-law partner are thinking about taking money out, the first question is usually: whose tax return does the withdrawal land on?

The answer turns on a look-back rule that people often call the three-year attribution rule. This article explains it in plain language, shows how to apply it to your own dates, and lists what to check before anyone makes a withdrawal. These are federal tax rules administered by the Canada Revenue Agency (CRA), and they apply to Ontario residents like anyone else.

Who is who in a spousal RRSP

In a spousal RRSP, one person is the contributor and the other is the annuitant. The contributor puts money in and claims the deduction. The annuitant is the spouse or common-law partner who owns the plan and is the person the money is held for.

Only the annuitant can generally withdraw funds from the plan. That is why a couple has to plan together: the person who gets the cash is not always the person who gets the tax bill.

The contributor can keep adding to a spouse's plan until December of the year the spouse turns 71, even if the contributor can no longer contribute to their own RRSP. Each new contribution matters for the look-back rule below.

How the three-year rule works

When the annuitant withdraws money, the contributor may have to report the withdrawal if the contributor made a contribution to a spousal or common-law partner RRSP in the year of the withdrawal or in either of the two preceding years. That is three calendar years in total: the withdrawal year and the two years before it.

If the contributor made no such contributions in those years, the annuitant generally reports the withdrawal as their own income.

Where the rule applies, Form T2205 is used to split the income inclusion between the two people. How the amounts work out in your situation is worth confirming with an accountant.

A simple way to test your own dates

Take the calendar year of the planned withdrawal. Then look at that year and the two years before it. If the contributor made any contribution to a spousal plan in any of those years, the rule may apply.

For example, if the contributor's last contribution was made in the second year before the withdrawal year, it still falls inside the look-back, so the contributor may have to report the withdrawal. If the contributor made no contribution in the withdrawal year or either of the two preceding years, the annuitant would generally report it.

The example is only meant to show the counting. Your own result depends on exactly when contributions were made and which tax year they count toward, so check the dates on your receipts and notices.

Things people often overlook

• Contributions to a spousal RRSP reduce the contributor's own RRSP deduction limit, and the combined deductions for the contributor's own and spousal plans cannot exceed the limit.
• Several plans can be involved. If the contributor has added to a spousal plan recently, a withdrawal from that plan is the one to examine, so keep records plan by plan.
• A late-year contribution can pull a withdrawal back into the contributor's income. Timing a contribution just before a planned withdrawal can undo the point of the plan.
• A separation, a move or a change in income can change the plan. If you are separating, how the plan is treated depends on your facts and is worth discussing with a family lawyer and an accountant together.

Married spouses generally have to split property acquired during the marriage, while common-law partners are not legally required to split property acquired while they lived together. How a particular RRSP fits into that picture depends on the facts, so do not assume the plan simply follows the name on it.

What to do before anyone withdraws

• List every year the contributor added to a spousal plan, going back at least three calendar years from the planned withdrawal.
• Confirm which person is the annuitant, since only the annuitant can generally withdraw.
• Ask an accountant whether Form T2205 will be needed and how the income would be split.
• Check how the withdrawal changes each person's taxable income for the year.
• Consider delaying the withdrawal to a later calendar year if that would move it outside the look-back window.
• If you are separating or have a separation agreement, get legal advice before moving any retirement funds.

A lawyer or accountant can review your actual contribution history and give advice for your situation. Doing that before the withdrawal is far easier than correcting a tax return afterward.

Frequently asked questions