by Jennie Weeks
Did you know that when you receive spousal support it creates RRSP contribution room!
Yes, its true, it’s considered ‘earned income’ and its taxable in the hands of the spouse who receives the spousal support, and tax deductible to the spouse who pays the support.
This is especially relevant to a spouse who has no other earned income as they have no other way to create RRSP contribution room.
If you are receiving spousal support there is an opportunity to contribute to an RRSP to reduce your taxable income. Up to 18% of your spousal support payment can be contributed to an RRSP (to a maximum).
For example, if you are receiving $50,000 in spousal support, you can contribute $9000 to your RRSP and you are only pay income tax on $41,000 of this payment. You save for retirement and pay less tax.
But be careful, as RRSP limits are based on previous year’s earned income, so if its your first year receiving spousal support, you will need to wait for the following year to make the contribution to your RRSP.
For more information about tax planning during separation check out the list of Certified Divorce Financial Specialists on our website.