English Subtitles for 8 4 RRSP Spousal Plan

Subtitles / Closed Captions - English

So what I actually want to talk about is the spousal RSP. This is an excellent, excellent way of what we refer to as income splitting. The purpose of income splitting, obviously, is to reduce the taxes. So if I'm in a higher tax bracket

and my spouse is in a lower tax bracket, it makes a lot of sense for me to move money from my high tax bracket over to her tax bracket. So as a result, collectively, we pay less tax. So splitting of income is an excellent way of basically reducing the total family tax bite.

And I should also mention that it also helps a great deal in reducing the possibility of the OAS clawback. Don't forget that OAS is subject to clawback of income. So if I can lower my income to below the OAS threshold, which is roughly about $74,000 this year--

if I can lower it to below that, I also don't lose any of my OAS benefits as well. So it is a good idea to do some income splitting and everything else. So it does very much reduce the taxes for both husband and wife, the overall tax.

The deposits that I can make into my spousal RSP depends very much on the amount of contribution. In other words, I can't just throw any amounts of money. Even though I'm putting it not into my own plan, I'm putting it into my spouse's plan, it still is up to whatever my 18% happened to be.

So in our example that I was using before where I said 18% of my earned income was $20,000, let's say-- so I can take that $20,000, and I can put it into my own RSP if I want to. Or I can take the entire $20,000 and put it into my wife's RSP if I wanted, my spousal RSP.

I can certainly do that. Or I can take 10 in mine and 10 in her. I can do all that. The point is that all of it depends on what my contribution room-- not what my spouse's contribution room is.

She may have her own RSP. My contribution to spousal RSP will have no impact on her contribution to her own RSP. So the only impact is really on myself. So therefore, the deposits that I make on my spousal RSP will still be dictated by the amount of contribution room

that I actually have. It also reduces the contribution, of course, to my own RSP. So if I decide that I'm going to put in my whole $20,000 into my spouse's RSP, obviously, I can't put another 20,000 in my own.

So I've got to look at the fact that is it better for me to simply split half and half or whatever. But it will not-- I cannot put the same amount in both plans. I can basically only have 20,000 in my example. So I can put the entire 20,000, but not in my RSP.

I could split that 50-50 if I want to, whichever way I want. But the maximum still is that $20,000. Probably the most dangerous thing, and one of the things that people forget, and got to be very, very careful about, is that if, in the event in the spousal RSP is an early withdrawal-- people forget

about these kind of things-- the early withdrawal can be quite severe. The cost of early withdrawal can be quite severe. The definition of your withdrawal is basically that if I withdraw money that was deposited in a year of deposit,

or two years following that particular deposit, then any of the money that's withdrawn within the year of deposit plus two years to the end of that year-- that income-- that particular taxation-- will be back to the contributor. So let me try to give you an example.

If I put in money this year-- $10,000, let's say, this year into the spousal RSP-- so from today-- so today, we're in 2016-- so basically, 2017 and 2018. So at the end of 2018, if I take out any money between now-- about $10,000, let's say-- between now and 2018, that is going to be attributable back to me as the contributor.

It will not be attributable-- my spouse will get the check. She'll get the $10,000. That's not a problem. But I will get the tax bill. So let me give you an example, a simple example, basically. Let's say that I put in $10,000 in the year

2013, 2014, another $10,000, 2015, another $10,000. So I threw in an entire $30,0000. And then my spouse decides to collapse the whole thing. These last two payments-- 2014, 2015-- because it's within that two years, basically-- these last two payments

of $20,000 my spouse will get a check for $20,000. That's not a problem. It may be some adjustments and everything else. But basically, she'll get a check for $20,000. But the tax-- I will, in fact, because I'm the contributor, I will get the tax bill.

So it is taxed in the hands of the contributor. So any amount of money that I put into the spousal RSP, they've got to be in there, basically, longer than two years to make sure that I'm not going to be taxed, but my spouse will be taxed if she takes out the money.

That's fine. But I won't be taxed. But if the money comes out within the two years of the actual deposit, my spouse will still get the check. Because it is her money.

It's trust money. It's in trust for her, so it is her money. But I will, in fact, get the tax bill. So you've got to be very, very careful when you're putting in money into your spousal RSP in terms of these withdrawals.

Make sure that you don't withdraw any amounts of money that were deposited within two years of deposit. Otherwise, you're going to find that you're going to have a very, very nasty tax bill. That's something that can be avoided by simple planning.

So at this point, I'd like to move on to the next subject.

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