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Our family was at the kitchen table recently when our youngest son, Michael, approached his mother and handed her the two sides of an Oreo cookie. He had eaten the icing in the middle.

"Here Mommy," Michael said, "I don't want the skin." To Michael, the "skin" served no practical purpose. It was unnecessary.

What the skin of an Oreo is to Michael, spousal registered retirement savings plans have become, to many Canadians, of no practical use -- even unnecessary. You see, spousal RRSPs have always been used to split income. That is, to shift income from one spouse to the next, in retirement, in order to reduce the family's overall tax burden. How? By the higher-income spouse contributing to an RRSP under which the lower income spouse is the annuitant.

Many are of the mind that spousal RRSPs have officially gone the way of the dodo bird, following the announcement on Oct. 31, that our government is going to allow seniors to split eligible pension income with their spouses. In case you missed it, Finance Minister Jim Flaherty announced that those 65 years and older will be allowed, starting in 2007, to report up to one half of their eligible pension income on the tax return of their spouse. (See my article dated Nov. 4 at http://www.timcestnick.com for more). Does this mean, then, that spousal RRSPs are obsolete? Not at all.

The value

There's still value in setting up a spousal RRSP because the new rules that will allow a splitting of eligible pension income, which includes RRSP withdrawals, only apply once an individual has reached age 65 (with rare exceptions). If you want to split RRSP income prior to age 65, a spousal RRSP can still allow this to happen.

Also, you'll be able to transfer a maximum of 50 per cent of your eligible pension income to your spouse. What if you want to have more than 50 per cent taxed in your spouse's hands? You can effectively move assets into your spouse's hands, over time, using a spousal RRSP.

Now, consider this: It's possible today for a person who is over age 69 and has earned income to contribute to an RRSP and claim a tax deduction for the contribution, but that contribution cannot be to his or her own RRSP (since RRSPs mature and must be wound up by the end of the year in which you reach age 69). The contribution can be to a spousal RRSP, however, as long as your spouse is still young enough to have an RRSP.

Finally, for those interested in making a withdrawal from an RRSP to buy a home or obtain an education, it's possible to double the potential withdrawals under the Home Buyer's Plan and Lifelong Learning Plan by having RRSP assets in both spouses names, which can include spousal RRSPs.

The strategy

If you're going to contribute to a spousal RRSP, do it by Dec. 31. Why? This will effectively reduce the length of time that must pass before your spouse can make withdrawals without at least part of the withdrawal facing tax in your hands.

Here's an example: If you contribute by year-end, your spouse can make a withdrawal of those dollars on Jan. 1, 2009, at the earliest without attribution of the withdrawal back to you. If you wait until the first 60 days of 2007 to make the contribution, your spouse will have to wait until Jan. 1, 2010, to avoid attribution back to you.

The bottom line? Spousal RRSPs still have a role to play, and the time to contribute is today.

Tim Cestnick is a principal with WaterStreet Group Inc. and author of Winning the Tax Game, among other titles.

tcestnick@waterstreet.ca