spouser RRSP verses Own RRSP


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bhuvanj   
Member since: Feb 03
Posts: 103
Location: Toronto

Post ID: #PID Posted on: 08-01-07 12:49:41

hi,

could some one explain me that what is the benift of having a spouser RRSP.

1. say husband has a rrsp dedicated to him.
2.wife have a rrsp dedicated to her.

say if husband's limit is 25K and wife's limit is 5k.
now is it possible that husband contribute 20k in his rrsp and remaining 5k in his wife's rrsp. Also wife contributes her 5k limit in her rrsp too(so in total she has 5 +5=10K)

or do we need to open a new spouser rrsp in which husband contribute for wife?

if he can directly contribute in wife's rrsp, so what is the benifit of having a spouser rrsp?

2.my second question is regarding tax refund for rrsp
say if someone hasn't contributed any money in rrsp till now although he is working in Canada since 3 years, and during this 3 years of time he got several pay raises.

now if he wants to contribute all his rrsp deduction limit up till this year, will he get the tax benefit calculated according to his current salary, or it will be calculated separately for each year considering tax paid by him in that year.

thanks
Monika


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hello!


Pramod Chopra   
Member since: Sep 03
Posts: 1284
Location: Pickering, ON

Post ID: #PID Posted on: 08-01-07 13:18:31

Quote:
Originally posted by bhuvanj

hi,

could some one explain me that what is the benift of having a spouser RRSP.

1. say husband has a rrsp dedicated to him.
2.wife have a rrsp dedicated to her.

say if husband's limit is 25K and wife's limit is 5k.
now is it possible that husband contribute 20k in his rrsp and remaining 5k in his wife's rrsp. Also wife contributes her 5k limit in her rrsp too(so in total she has 5 +5=10K)

or do we need to open a new spouser rrsp in which husband contribute for wife?

if he can directly contribute in wife's rrsp, so what is the benifit of having a spouser rrsp?

2.my second question is regarding tax refund for rrsp
say if someone hasn't contributed any money in rrsp till now although he is working in Canada since 3 years, and during this 3 years of time he got several pay raises.

now if he wants to contribute all his rrsp deduction limit up till this year, will he get the tax benefit calculated according to his current salary, or it will be calculated separately for each year considering tax paid by him in that year.

thanks
Monika





Contributions to RRSPs are individual contributions and a person can contribute only up to the contribution limit ( plus $2000) and this contribution can be done in person's name or in his or her spousal RRSP.

For contributing in Spousal RRSPs, the contribution room is used only of the contributor and not of the spouse and the contributor gets the tax refund while the spouse becomes the owner or annuitant of the said RRSP.

Contributions to spousal RRSPs are done primarily for income splitting and are beneficial in cases where one spouse has higher income and the other spouse has nil or a much lower income or is expected to have nil or much lower income at the time of withdrawing RRSP contributions so that it should be taxed at a much lower tax rate.

Considering your example, where the husband has a limit of $25 K and the wife has a RRSP limit of $5 K, the husband can contribute all or part of $25 k either in his own RRSP or his spousal RRSP and the husband would still get the tax benefit while the wife would become the owner of the RRSP.

If the money is withdrawn from this spousal RRSP after 3rd year it would be added to the income of the spouse (wife in this case) and if she has a low income it would be taxed at a lower rate. However, if the amount is withdrawn by the spouse (wife in this case) before 3rd year, then the amount would be added back to the husband income and would be taxed at his marginal rate.

RRSP contribution room can grow over time but when a person contribute and claim the tax deduction, then he/she gets tax deduction based on his current income level ( for the year he/she if claiming ) and not on the income of previous year when he / she had lower income or contributed to the RRSP but did not claim tax deduction.

I hope it may have cleared some of the doubts but if you need more clarification, you can either email me or call me to discuss.






-----------------------------------------------------------------


Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada



bhuvanj   
Member since: Feb 03
Posts: 103
Location: Toronto

Post ID: #PID Posted on: 08-01-07 13:36:14

then what is the benefit of spouser rrsp, if husband can directly contribute in wife's rrsp?


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hello!


Pramod Chopra   
Member since: Sep 03
Posts: 1284
Location: Pickering, ON

Post ID: #PID Posted on: 08-01-07 14:22:04

Quote:
Originally posted by bhuvanj

then what is the benefit of spouser rrsp, if husband can directly contribute in wife's rrsp?



You missed the point from above.

The spousal RRSP is used for 'income splitting' and to save taxes in future.

The money grow tax sheltered in RRSP, however, when it is withdrawn the total amount is added to your income making you pay tax on that amount on your highest tax bracket. If the spouse has lower income then the money from the spousal RRSP would be withdrawn by the spouse and would be added to spouse's income and would be taxed at a lower tax bracket resulting in tax savings.

If you still have doubts then please call me.




-----------------------------------------------------------------


Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada





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