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RRSP

You have until the 60th day of the new year (i.e. around March 1st) to contribute to your RRSP and lower your taxes for the previous year.

What an RRSP Is

A Registered Retirement Saving Plan, or RRSP, is a special type of investment account designed to help Canadians save for retirement. The main advantage of an RRSP account, as compared to a regular investment account, is the tax benefits it offers.

For now, just know that the contribution made to an RRSP - which can be made up to a certain limit - are tax free and that the money within an RRSP can compound without your having to pay taxes on the gains.

RRSP tax benefits come in two forms:

1. Tax-Deferred Growth
All investments within an RRSP account grow tax deferred. In other words, any profits made on investments within an RRSP account in the form of interest, dividends or capital gains are not immediately taxable to you as income.

Note that there is a difference between tax deferred and tax free, however. RRSP investors do have to pay taxes on the profits in their RRSP, but this does not occur until the funds are withdrawn. Tax deferral remains a benefit because, in theory, income tends to be lower in retirement than in your peak earning years.

2. Tax Credits
The second major tax benefit comes in the form of a tax credit. What this means is that your taxable income is reduced by the amount you contribute - up to a certain point.

Contributions

Annual Limit: 18% of eligible income up to $26,010
+/— any Pension Adjustment
+ Previous Contribution Room
Deadline: March 1st, 2018

  • Contributions above the overall contribution limit is subject to a 1% / month penalty 52000 life time over contribution limit(refer to CRA website)
  • A client’s contribution room can be found in their Notice of Assessment, CRA My Account (online), Notice of Reassessment, and T1028
  • In-kind contributions: capital gains most be declared, capital losses cannot be claimed. Current market value is used to calculate contribution amount.
What are RRSPs?

A federal government tax-deferred savings program, designed to encourage Canadians to save and invest for retirement.

Benefits at a Glance
  • Investments inside an RRSP are tax sheltered
  • Contributions are tax deductible
  • Potential creditor protection (not including contributions made in past 12 months) Potential income splitting (Spousal RRSPs, RRIF income after age 65)
Spousal RRSPs
  • Contributions are tax deductible to the contributing spouse
  • Spousal contributions can be made even if contributing spouse is over age 71, but annuitant must be age 71 or younger
  • Withdrawals are taxable to the annuitant except for spousal contributions made in the last three years (income attribution)
    - For exceptions to the “three year rule", refer to the CRA website
Home Buyers Plan
  • Maximum loan to yourself: $25,000 (available to each buyer)
  • Must be “first time homebuyer or buying for a related person with a disability Repay loan within 15 years (starting in year two)
  • Unpaid payments become taxable income
Life Long Learning Plan
  • Maximum loan to yourself: $20,000 (up to $10,000 / calendar year) while enrolled in post-secondary education
  • Repay loan within 10 years
  • Unpaid payments become taxable income