There are several arguments still in favour of continuing to contribute to a spousal RRSP, mainly:• New contributions to spousal RRSPs allow for income to be split 100%, whereas the income splitting rules limit splitting to 50%
RRSP amounts already accumulated can benefit from the income splitting rules.
• Contributions to spousal RSPs allow for income splitting before age 65. They can be used for income splitting during the transition period.
• Contributions to younger spouses’ RRSPs can extend the tax deferral until they turn 72.
• Contributions to spousal RRSPs protect against any legislative changes that might restrict or even abolish income splitting in tax returns.
• Contributions to spousal RRSPs protect against creditor claims.
• If a spouse is required or meeds to make an early RRSP withdrawal and contributions have been made to a spousal RRSP, the tax payable
can be lowered by making the withdrawal from the spousal RRSP.
• With contributions to a spousal RRSP, the amounts available under a Home Buyers’ Plan can be doubled if the spouse’s RRSP does not
already have a value of $25,000. Funds would also be available for Lifelong Learning Plans.
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TAX TIPS Income Splitting Opportunities
Because interest rates are so low, now appears to be an ideal time to split income with a spouse, adult children or a trust for the benefit of minor children. Attribution rules do not apply to these individuals for loans with an interest rate equal to or greater than the prescribed rate at the time the loan was granted. This rate applies for the duration of the loan even if the prescribed rate increases afterwards. This rate (both federal and provincial) was only 1% for the period from September to December 2009.
Incorporation can allow business owners to implement certain tax strategies such as creating an individual pension plan (see Info Advice #308) and transferring a life insurance policy in order to withdraw tax-free funds from a company.