A higher-income spouse contributes to a spousal RRSP for the lower-income spouse. The lower-income spouse withdraws the contribution amount the following year. What should the planner warn them about?
A.
The withdrawal is always tax-free.
B.
The withdrawal may attribute back to the contributing spouse.
C.
The withdrawal must be taxed as capital gains.
D.
The contribution permanently eliminates all future spousal RRSP room.
Spousal RRSPs support retirement income splitting, but the attribution rules prevent short-term deduction-and-withdrawal planning. If the annuitant spouse withdraws amounts from a spousal RRSP within the attribution period, recent contributions may be included in the contributing spouse’s income rather than the annuitant’s income. Option A is wrong because RRSP withdrawals are taxable unless a specific program or offset applies. Option C is wrong because RRSP withdrawals are ordinary income, not capital gains. Option D misstates the mechanics; RRSP contribution room belongs to the contributor and is affected by contributions, but spousal RRSP room is not a separate permanent account destroyed by one contribution. A planner should review timing, contribution history, expected retirement brackets, pension income, and cash flow needs before recommending withdrawals. The strategy works best when used for longer-term retirement income planning rather than immediate tax arbitrage. References/topics: spousal RRSP, attribution rules, retirement income splitting, taxable withdrawals. Timing records are essential because attribution depends on recent contributions.
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