Why You Should Use Spousal RRSP For Income Splitting?

Many people with high earnings in Canada use direct income-splitting options to reduce their tax burden. However, a family with an average income may not benefit from the same options. Of course, there are alternatives for reducing the tax burden of average families in Canada.

You may use a spousal RRSP for indirectly splitting income and enjoying a lower tax burden. If you want to know why you should use this option for income splitting, you’re on the right platform. Here are the top four reasons to use spousal RRSP.

  • Split Income More Equally

Spousal RRSP can help you find a better balance when splitting your income. You can equally split the earnings easily before reaching the age of 65. This means you can enjoy more benefits during early retirement.

By equalizing your income, you will pay lower taxes every year. So you can save thousands of dollars using this method. The lower tax payments mean that you will have more funds for withdrawing after reaching a specific age.

  • Contributions Can Be Made Even After You Have Exceeded Age 71

As per Canadian laws, you cannot make contributions to your retirement plan after age 71. However, there is one exception to this tax rule. You can contribute to your deduction limit if you have a spouse who is younger than age 71.

The primary benefit of making contributions is that you can reduce your net income easily. It will also allow you to enjoy more benefits the government has kept for retirees. You can also offset other income types by using a spousal RRSP for making contributions to your plan.

  • Tax Rate Arbitrage Is Possible

This action has been designed to make contributions at a higher rate. The best part is that the same option will decrease the tax rate for withdrawing money after retirement. So your spouse will be allowed to take out more money from your account by reducing the amount that will be deducted in taxes.

The option is also preferable if you already have a greater tax rate than your spouse. Early retirement planning becomes easier if you decide to use spousal RRSP for tax rate arbitrage.

  • Increases Your Home Buyers’ Plan Limit 

The Home Buyer’s Plan in Canada allows first-time buyers to borrow at least $35,000 from their registered retirement savings plan (RRSP). The best part is that you can increase your limit by choosing a spousal RRSP if you have a partner. This is because your borrowing amount will be doubled.

Using the spousal RRSP, you can borrow up to $70,000 from your retirement plan. This means you can get a better home and enjoy more benefits with easy access to money.


These are the top four reasons to use spousal RRSP for income splitting. This plan is best for families that do not have significantly high earnings. Your tax burden will be reduced because of the RRSP, and you can enjoy better government benefits such as an increased limit for Home Buyers’ Plan.

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