Page 89 - A Canuck's Guide to Financial Literacy 2020

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the year of withdrawal or the past two years before that. If so, then attribution rules would
apply.

Withdrawal Amount Up to Between $5,000 and up to Over
$5,000 $15,000 $15,000
Tax Rate withheld for Canadian 10% 20% 30%
residents
Tax Rate withheld for the province of 5% 10% 15%
Quebec

Attribution Rules on Withdrawals

Attribution rules, also known as the 3-Year Rule, were created for the purpose of
discouraging the use of a spousal RRSP for short term income splitting. The goal of spousal
RRSPs is to encourage Canadians to accumulate assets for the purpose of retirement
income.

For example, Jennifer’s spousal RRSP has a value of $50,000. She wants to withdraw
$10,000 in which withholding tax of 20% would apply. Jeff contributed $10,000 last year to
Jennifer’s spousal RRSP. Since this contribution by Jeff was within 3 years, then the
withdrawal will be taxed in Jeff’s hands due to attribution rules. $10,00 will be added to
Jeff’s taxable income in the year of withdrawal.

Exceptions to Attribution Rules

▪ If the contributing spouse dies within the year of withdrawal, attribution rules will not
apply
▪ If you or your partner become non residents when the funds are withdrawn, attribution
rules will not apply
▪ If your relationship has suffered a breakdown or you and your spouse are living apart,
attribution rules will not apply

Contributions after Death

If you pass away and have available contribution room, your legal representative can can
contribute into a spousal RRSP on your behalf. The contribution must happen in the year of
death or within 60 days after the end of the year in which you become deceased.

In contract with RRSPs, contributions cannot be made to a deceased holder’s RRSP but
contributions to a spousal RRSP are permitted pending that the spouse has not reached 71
years old.