Borrowing to Contribute to Your RRSP

Does it make sense?

If you have not yet made the maximum contribution to your RRSP for 2007, or have unused contribution room from previous years, now is the time to consider an RRSP loan.

Should you borrow to invest in your RRSP? There’s no simple answer to this question as it really depends on your financial situation.

Short Term RRSP Loans

The general rule of thumb is that as long as you can pay back your RRSP loan within the year, you are better off than if you do not make the contribution at all. For example, if you borrow $10,000 at 5%, your monthly payment would be $856 and your total principal and interest payments for the year would be $10,273. If your RRSP grew at 8%, the total value of the contribution after one year would be $10,800.

After one year, you are already ahead by $527. This does not take into account that by making this contribution, you may be eligible for a tax refund. If you are in the highest marginal tax bracket (46.41% in Ontario), this $10,000 RRSP contribution will result in a tax refund of up to $4,600. If this refund is used to pay down your RRSP loan, this scenario gets even better as it will reduce your loan to approximately $5,000.

Long Term RRSP Loans

What happens if you are unable to pay back your RRSP loan within the year? This may be the case if you have large amounts of unused RRSP room. For example, what if you had $50,000 in unused room and were able to get a 5% loan for 5 years starting January 1, 2008, your monthly payments for the first six months would be roughly $950. The tax refund generated from the contribution ($23,000 assuming you are in the highest marginal tax bracket in Ontario) should be used to pay down your loan. Once you have reduced your outstanding loan by the tax refund you have two choices, you can either continue to pay $950 a month, which would result in you paying off your loan by July 31, 2010. Or, you can keep your 5-year term and reduce your loan payment to $470. Under the first option, your total payments are
$52,500 and under the second option, your total payments are $54,000. Assuming an 8% rate of return in your RRSP, within 5 years the $50,000 contribution will be worth $73,466 and within 25 years it will be worth $340,000!

As you can see from the above example, people that benefit the most from long term RRSP loans are those who are able to use up the majority of their unused RRSP room and have many years until retirement. The advantages of borrowing are most effective if the money can benefit from tax-free growth (in excess of the interest payable on the borrowed money) for many years.

Remember – RRSP Loans Are Not Tax Deductible

The interest on a loan for your RRSP is not tax deductible. However, money borrowed to earn non- registered investment income is deductible. This is why it may make sense to use extra cash to contribute to your RRSP and borrowed funds for non registered investments.

The Bottom Line
If the only way you are able to contribute to your RRSP this year is to take out a loan it may be a good idea. However, the longer the loan is outstanding the more non-deductible interest you will end up paying.  Contact us at (604) 535-4749, or use our contact page.

Back to Basics: A Reminder of RRSP Musts

To play any game, it is important to know the rules and how they may affect the outcome or result of the game. Not to suggest that planning for retirement is a game, but knowing how RRSP rules can affect your retirement planning is very important. Below are a few of the “must knows” for your RRSP planning.

1. Maximize your contribution

The more you put away the more you will have. It is important to know the maximum allowable limit for your financial situation. Currently for 2007, you can contribute 18% of your prior year’s earned income up to a maximum of $19,000 less your pension adjustment (PA) and your past service pension adjustment (PSPA). Remember also that carryforwards of unused contributions from 1991 onward can also be contributed.

2. Contribute Today

The sooner you contribute, the sooner your savings start growing for your retirement. The compounding of interest returns can make a big difference on your RRSP balance over time.

3. Spousal RRSPs
Contributions can be made to a spousal RRSP that will allow income splitting at retirement which in turn will reduce the amount of tax that you will pay. Contributions are limited to your personal limit.

4. No More Foreign Content Limit

• 30% foreign content limit in RRSPs and registered pension plans is now a thing of the past.
• Canadian investors now have the option to invest up to 100% of their retirement plans into foreign securities, without penalty.
• Opportunities for money managers to seek out the best investment opportunities wherever they exist is wonderful news for Canadians - provides the opportunity for greater diversity and more attractive risk-adjusted returns.

5. Consolidation

Consolidating your assets leads to more efficient asset management as well as reduced costs. The Butler / Laing Group will be happy to discuss why consolidation would be right for you.

Contact us at (604) 535-4749, or use our contact page.

Life Annuities

Are They Right for You?
As a part of retirement planning annuity income can compliment other incomes you are receiving. There are two types of annuities – “life” and “term certain.” Both these types of annuities can be registered and non-registered. This article will outline the details of life annuities and suggest reasons why you may wish to consider them in your portfolio.

What is a life annuity?
Life annuities provide you with a regular income paid at selected intervals for the rest of your life, regardless of the age you live to. These payments will cease at your death and no value will be available to your beneficiaries unless you arrange for a joint annuity or a guaranteed minimum payment period (explained later.) These regular payments can be monthly, quarterly, semi-annually or annual. A life annuity can only be purchased from a life insurance company. The income payments can be level for the remainder of your life or can be indexed at a pre-selected rate. Several factors, including current interest rates, are considered when an annuity income is calculated, and as a result, once you buy a life annuity you are locking this interest rate in for the entire payment period.

Registered
Life annuities can be purchased with assets in any registered account. (These can include RRSP, RRIF, LIF, LRIF and DPSP funds.) You can also arrange for your company “Registered Pension Plan” to be converted to a life annuity. The entire amount of the income you receive will be taxable in the year you receive it.

Non-registered
Any money you have in an unregistered account may also be used to purchase a life annuity. The taxation of payments from a non-registered annuity can be quite favorable. Non-registered funds can be used to purchase a “prescribed” annuity. When you do this only the interest portion of the payments are taxable and this interest portion remains level throughout your lifetime. This results in a very favorable after tax income. A suggested strategy would be to consider using cash that is in an account and earning interest, which is taxable to you each year, to purchase a prescribed annuity. The resulting after tax cash flow will be substantially greater. If you wish to ensure that the original capital you put into the annuity is available to your beneficiaries (remember the annuity stops at your death) then you can life insure this capital. In most case, even after the cost of insurance is paid, the remaining after tax income is significantly greater.

Types of life annuities

“Single” life annuities

These will pay you an income at the selected intervals for as long as you live. As mentioned the income will cease at your death.

“Joint” life annuities

These will pay an income for as long as two people live, the income will stop at the second death. Typically you would select this type of annuity to be sure you and your spouse would receive income for life. As a note, current pension legislation requires that if you are married and are selecting an annuity income from any registered pension plan, you must select a joint annuity with your spouse. The only exception to this would be if your spouse “signs off” and allows the payments made for your life only. In most cases it would not be in the best interest of either spouse to sign off as this effectively “disinherits” the survivor. Joint life annuities can also be arranged to pay the original amount, or a percentage of the original amount, to your spouse after your death. Typically this would be 75, 60 or 50%.

Guarantees

Although all life annuities will pay an income to you for the remainder of your life, this income will cease at your (or the joint annuitants) death. In order to protect you against a substantial loss in the event you purchase an annuity and die within a short period of time, you can add a minimum guarantee to the payment period. This can usually be 5, 10, 15, or 20 years or until a specific age. The maximum guarantee period however cannot exceed your age of 90.

Example: If you add a 10 year guarantee to a single life annuity and die in the 5th year, the remaining 5 years of payments will be commuted to a discounted lump sum and paid to your beneficiary.

How do you decide?

The income received from a given amount of capital will reduce as you add additional guarantees and survivor benefits to an annuity. The highest income will result from a single life, no guarantee annuity. This income will reduce as you add features to the point where the least amount of income would result from a joint last-to-die annuity, with a maximum guarantee period, paying 100% of the original income to your spouse at your death. When you are considering which type of annuity is best in your situation you should review several quotes with these various alternatives. This will allow you to see the resulting incomes, and help you select the correct annuity, based on your income requirements, balanced with your desire to leave an estate for your beneficiaries.

Impaired annuities

Similar to the effect poor health will have on the purchase of life insurance, in that it will increase the premium you pay, the effect of poor health on life annuities will be to increase the income you receive.

When should you consider life annuities?
For most people a “base” income that is guaranteed to be paid for your and/or your spouse’s life can form the foundation of retirement income. Here are some factors you might consider in purchasing a life annuity.

• You want a fixed income guaranteed for life.
• You don’t want to make investment decisions.
• You want to lock in your investments at current rates.
• You’re not concerned about leaving an estate to your children or grandchildren.

Summary

The use of life annuities can bring several advantages to your income planning. As with any other decision, assistance from The Butler / Laing Group in showing you how these can fit into your plan would be of benefit. In addition, rates from different insurance companies can vary significantly and we will be able to assist you by shopping various companies and reviewing the results with you.  Contact us at (604) 535-4749, or use our contact page.

The Home Buyer’s Plan – Is It Right For Me?

What Is It?

If you are considering purchasing (or building) your first home, the Federal Government’s Home Buyer’s Plan is an option you may want to consider. This plan was first introduced in the 1992 Federal Budget to assist first time home buyers. The plan allows you to withdraw up to $20,000 from your RRSP. There is no tax withheld on this withdrawal, however, the funds must be repaid in annual minimum amounts over a period of 15 years.

You Should Know

As with any plan there are several “rules” you should be aware of:

• The home you are buying must become your principal residence.
• Two people can withdraw from their RRSPs for the same home (they need not be spouses); however, the home must be intended to be the principal residence of both.
• You cannot have owned a home, or have lived in a home owned by your spouse, in any of the five calendar years beginning before the time of withdrawal.
• The home must be located in Canada.
• Before withdrawing from your RRSP you need to have a written agreement to buy or build a home. You must acquire your home by October 1st of the year following the year that you withdraw the money.
• You must repay this money to your RRSP over the next 15 years starting in the second calendar year after withdrawal.
• Your payment is due within 60 days of the end of each year. If you don’t make this payment then this amount is added to your income for the year and as a result will be taxed at your highest marginal tax rate.
• If you make a contribution to your RRSP within 90 days prior to your withdrawal, that contribution will not be deductible if the contributed funds were needed for the withdrawal.
• There are special rules for withdrawals to buy a home for the benefit of a disabled person who qualifies for the disability tax credit. These rules allow for previous ownership and multiple withdrawals. Each year Canada Revenue Agency (CRA) will provide an annual statement informing you of your minimum repayment requirement.

Each year CRA will provide an annual statement informing you of your minimum repayment requirement.

One More Important Point

There is one other important point to consider. By withdrawing funds from your RRSP under this plan, you are forgoing the investment income and the related tax-deferred compounding of that income during the time that this money would have been in your RRSP. This results in the reduction of your RRSP balance and subsequently the income available to you during your retirement.

As an example, assume a 30 year old investor takes $20,000 out of his RRSP under the plan and begins to repay the amount right away ($1,333/year over 15 years). Had he left the amount untouched until age 71, the $20,000 would have grown on a tax-deferred basis to approximately $469,000 (assuming an 8% rate of return). However, the home buyer’s withdrawal together with the subsequent repayment (1/15th per year) would result in an RRSP balance (at age 71) of approximately $287,000, a difference of $182,000 from the RRSP that was left untouched.

While this is a significant amount, it does not necessarily mean that a home buyer’s withdrawal is a poor strategy to follow. A home buyer’s withdrawal strategy however, should be well thought out. This may mean for instance, that a comparison be done of the amount of interest that is saved due to the smaller mortgage balance that results from the home buyer’s withdrawal. Also, where other non-registered funds are available it would be wise to use this money (before you use RRSP funds), since the investment returns earned on it are not deferred but are instead taxable to you each year.

In The End

So, although the decision to use RRSP funds is never an easy one, as long as you weigh both the advantages and disadvantages of the Home Buyer’s plan, you will be in a much better position to make an appropriate decision.  Contact us at (604) 535-4749, or use our contact page.

Tax Planning Year Round

You and your taxes: Establishing a year round process.

Does most of your tax planning take place during the last few months of the year? If so, you are not alone. However, to effectively reduce your current and future tax liabilities, tax planning should be a year round endeavor. Here are some opportunities.

Split your income

Income splitting involves structuring your affairs to move income into the hands of a lower-income family member who will pay less tax.

A spousal RRSP allows a higher-income spouse to contribute to the RRSP of a lower-income spouse. At retirement, this can help shift more income to the spouse who is expected to be in a lower tax bracket.

Another possibility is a spousal loan. As long as a prescribed rate of interest is paid, a spousal loan can be an effective way to transfer assets from a spouse in a higher tax bracket to a spouse in a lower tax bracket.

Donate securities

If you are considering a charitable donation, you may want to give stocks, bonds, or other publicly traded securities, including mutual funds. You’ll be deemed to have sold the investments at fair market value, however, any capital gains will be eligible for a reduced capital gains inclusion rate of 25% instead of 50%.

Create deductible debt

Tax deductible loan interest can be a great tax-saver. One strategy is to convert all or part of your mortgage debt into an investment or business loan.

For example, you could sell some investments to pay off your mortgage, then take a loan to repurchase the investments. This will effectively replace your non-deductible mortgage debt with a deductible investment loan.

Maximize your RRSP

Your RRSP is one of the few good tax shelters left. But don’t wait for the deadline to make your contribution. The sooner you invest, the longer your savings will be able to grow on a tax deferred basis. A monthly RRSP contribution plan can make this easy. And, if you have significant unused RRSP contribution room, a short-term loan is often a great way to catch up.

Consider an RESP

Today, a four-year university education in Canada costs $32,000 or more. In 18 years, using a 5% annual inflation factor, that number could rise to $77,000. Although contributions to a Registered Education Savings Plan (RESP) are not tax deductible, the income earned in the plan grows tax-free until it is withdrawn by the student. Plus, you could receive up to $500 a year in government grants to help your savings along. Consider this option if you have children with ambitions for higher education.

Make the right decisions all year
- Tax planning means that you are entitled to arrange your affairs, within the limits of law, so that you pay a minimum amount of tax.

Contact us at (604) 535-4749, or use our contact page.

What Happens to My RRSP When I Pass Away?

For most of us, RRSPs are one of our single largest assets. What happens to these on death is worth paying careful attention to. This article outlines some of the important considerations.

Taxes Are Due

When the planholder of an RRSP dies, the government is entitled to the income tax that has been deferred since the plan was started. The only exception to this is when the RRSP assets are left to a surviving spouse.
The total value of the RRSP is included in the planholder’s terminal tax return (the last one filed after a person dies) and the tax payable can be substantial. These RRSP proceeds will be taxed at the planholder’s marginal (highest) rate and the taxes must be paid out of the estate.

Naming Beneficiaries

The first thing to remember is that if you die without naming a beneficiary for your RRSP, the proceeds will become part of your estate and as such will be subject to probate. It is important to realize that it may still be possible to have these assets pass to a surviving spouse if the proper tax election is made.

Naming your Spouse - RRSP assets can be passed to your spouse or common law spouse (a person who is, and has for the past one year, co-habitated in a conjugal relationship with the taxpayer) without any immediate tax due. The assets can be transferred to his/her own registered plan (or a new plan can be setup) under what Canada Customs and Revenue Agency refers to as a “refund of premiums.” The RRSP assets are brought into the spouse’s income and offset by a tax receipt for the same amount. This allows these funds to continue accumulating with their tax deferred status and does not affect the spouse’s own RRSP room.

Dependent Child or Grandchild - You can name a financially dependent child or grandchild as the beneficiary of your RRSP. CCRA’s definition of “financially dependent’ is: “A person whose income in the preceding year did not exceed the basic personal exemption amount.” If the child is a minor, these funds must be used to purchase an income-producing annuity that pays the full amount until the child is18. You should note that dependence on grandparents would not qualify if it was by way of gifts or support that merely enhances the child’s “already adequate lifestyle.” This would be especially true if the child was living with another individual, such as a parent, who was already providing support.

Children of Any Age - A child of any age who was dependent on the planholder can receive the proceeds of your RRSP as a “refund of premiums” and the tax will be paid at the child’s rate.

Disabled Dependent Child - If the child is of any age, and financially dependent on the planholder by reason of physical or mental infirmity, then the RRSP proceeds can be rolled over tax free into his/her own RRSP. It is important to weigh any tax savings against the practical issues related to having funds go into the hands of an infirm child.

Others as Beneficiary - It is important to consider who pays the tax bill of your RRSP. If you were to name someone as the beneficiary of your RRSP who does not qualify for preferential tax treatment it could cause a significant problem for the other beneficiaries of your estate. An example would be naming your father/mother as the beneficiary of your RRSP and your children as beneficiaries of the balance of your estate. In this case the tax bill would have to be paid by the estate (out of your children’s share) and your father would get the full RRSP assets.

RRSP Home Buyers’ Plan at Death

If you have participated in the RRSP home buyer’s plan, the outstanding balance will be included as income on your final income tax return unless your spouse was named as beneficiary and had taken out a home buyer’s amount at the same time. When a Home Buyers’ Plan liability exists, the beneficiary has two options:

• the outstanding amount can be added to the final tax return of the deceased spouse or,
• the entire RRSP, including the Home Buyers’ Plan balance, can be rolled over to the beneficiary’s RRSP.

RRIFs

In the case of a RRIF, a spousal beneficiary can receive continuing payments if they are named as “successor annuitant.” Alternatively, the amount can be transferred to their RRIF or they can convert the RRIF back into an RRSP if they are under age 71.
Planning is Important

As you can see there are ways in which RRSP assets can be left to beneficiaries that will result in minimizing any taxes due. It is important to keep these designations up to date and, as always, to consider these assets individually as well as in context with your other estate goals. With careful planning you can reduce the impact of taxes on your estate and your RRSPs.

Contact us at (604) 535-4749, or use our contact page.

Spousal RRSPs - Understanding How They Work

RRSP time brings a number of questions including many on spousal RRSPs. This article will examine the use of spousal accounts and whether they are right for you.

What is a spousal account?

A spousal RRSP is an account in which you make contributions however, your spouse is the annuitant or the owner of the account. This means that your spouse has control over the account in terms of investment decisions and when payments are received from the account.

Why use a spousal account?

Effective tax and retirement planning would ensure that spouses had equal income at retirement to reduce the overall tax burden that a family would have. The main advantage of a spousal RRSP therefore is to help divide assets that will produce that future income. Usually, the higher income spouse contributes to a spousal RRSP and receives a tax deduction at a high marginal tax rate. Then in retirement, the other spouse withdraws that money to produce income and pays tax at a lower tax rate (subject to the attribution rules explained below).

As an example, a family with annual income of $70,000 earned by spouse would pay approximately $17,000 in taxes. However that same family with each spouse earning $35,000 would lower the tax bill to $11,900.

There may be situations where the lower income spouse would make contributions to a spousal account. In this case, they would likely be a member of a pension plan that is going to provide them with retirement income. Or, they have other assets that will cause them to have more retirement income than their higher income spouse.

Remember, the overall goal is to have both spouses with the same amount of retirement income.

How does a spousal account work?

When you choose to open a spousal account, your spouse’s name will appear on the account. You will be the contributing spouse and will receive the tax deduction, however, the legal owner of the plan is your spouse.

When they withdraw the money in the future, the taxes due will be in their name, subject to the attribution rules.

Attribution Rules

The attribution rules in the Income Tax Act are designed to prevent abuse of spousal accounts.

If a person makes a withdrawal from a spousal plan in the current calendar year and contributions have been made to any spousal account in the year of withdrawal, or the previous two years calendar years, that income will be attributed back to the contributing spouse.

The word “any” is important. A withdrawal from a spousal RRSP to which no contributions were made during the three-year period will still be attributed to the contributor’s income, if over that three-year period any contributions were made to any other spousal plans.

Note also the term “calendar year.” Making a spousal contribution in January 2004 would mean that the owner must wait until January 2007 before a withdrawal could be made.

However, if that same contribution was made in December 2003, and no other spousal contributions were made after, those funds could be withdrawn on January 2006, without any attribution.

Other Ways to Avoid Attribution of Income

In addition to the above, attribution of income from spousal withdrawals doesn’t apply in the following circumstances:

• If the funds in the spousal plan are transferred to a RRIF and only minimum withdrawals are taken. If more is taken, then the excess withdrawal is subject to attribution.
• If the spouse’s are living apart because the relationship has ended.
• If the contributing spouse died in the year a withdrawal is made.
• If either spouse becomes a non-resident.
• If the plan holder transfers money directly from the spousal plan to an annuity or to a locked in RRSP that can’t be cashed out for at least three years.

Can I make contributions to my spouse’s existing RRSP?

The short answer to that question is yes. However, as soon as you combine or co-mingle your spousal contributions with their regular contributions, the account is considered a spousal account for the purposes of the attribution rules as described above.

Depending upon your circumstances, it may be appropriate to have two accounts. If you were to require funds from an RRSP before retirement, and you had two accounts, you could withdraw from the account that made the most sense from a tax perspective (i.e., the account where the contributor would have the lower tax rate).

If the accounts have been co-mingled and are therefore a spousal account, the withdrawal would be taxed back to the contributing spouse.

Summary

Spousal accounts can be a very effective tool to help you plan for retirement. Talk to The Butler / Laing Group to determine if a spousal account is right for you.  Contact us at (604) 535-4749, or use our contact page.

Advanced Age RRSP Planning

Advanced Age RRSP Planning

Age 71 does doesn’t necessarily mean that you will not continue to have “earned income.” If you do have ongoing earned income there are still a couple of RRSP planning opportunities.

A Review of “Earned Income”

The following incomes qualify:

• Salary or wages
• Author’s or inventor’s royalties
• Executor’s and juror’s fees
• Net research Grants
• Taxable alimony or maintenance payments
• Income from a sole proprietorship
• Income as an active partner
• Net rental income from real estate
• CPP/QPP disability benefits

Over Contribution

Your RRSP contribution limit in the current year is based on your earned income for last year. As a result you may want to consider over-contributing to your RRSP before Dec 31st, and claiming the deduction in January next year. There is a 1% per month penalty on RRSP deposits over the $2,000 over-contribution limit, however, the effect of this will be minor compared to the tax deferral.

Example:

If you have sufficient earned income ($105,556) to qualify for the maximum $19,000 contribution you will realize a maximum net tax savings of $9,102.

• Earned income (this year) $105,556
• RRSP limit next yr. $20,000
• Contribute Dec this yr. $20,000
• Over-contribution penalty* $180
• Tax savings @ 46.41%** marginal $9,282
• Net tax savings $9,102

*1% penalty on $18,000 over-contribution based on $20,000 less $2,000
allowable
**Highest provincial marginal rate (Ont.)

You may also want to consider depositing an additional $2,000 to utilize this limit and tax defer investment growth on this amount.
Don’t forget that you can also use any carry-forward room that you have. These contributions must be made before the end of the calendar year. (March 1st deadline is not available at age 71).

Spousal RRSP

If you have made all your available contributions in the year you turn 71 and continue to have earned income (or you did not use your unused RRSP carry-forward) you may want to consider contributing to a spousal RRSP. If your spouse is under age 71 you can use your contribution room for deposits into their spousal plan. These can be made up to and including the year your spouse turns age 71.

In addition to providing tax deductions for yourself this strategy is an effective method of income splitting. The eventual income received from spousal contributions will be taxed in their hands.
In summary, these strategies will provide an opportunity for you to maximize all of your available RRSP room.  Contact us at (604) 535-4749, or use our contact page.

This article is for information purposes only. It is recommended that individuals consult with their own tax advisor before acting on any information contained in this article.

RRSP

Your RRSP Contribution Limit
Your RRSP contribution room is based on your prior year’s earned income. It is the lesser of 18% of the earned income or the maximum dollar limitation. See Table below. After 2011, the limit increases will be tied to the growth in average wages.

If you contribute to a registered pension plan at your place of employment, your contribution room will be reduced by a pension adjustment amount. Your employer calculates this figure on your behalf and is reported on your T4 slip.
In addition, any unused contribution room from prior years (starting in 1991) will increase your current room.

Investing Regularly-Monthly vs. Annually

Contributing your RRSP contributions regularly throughout the year can have a significant impact on the value of your RRSP. For example if you contribute $1,000 monthly to your RRSP, after 10 years at 8% growth the RRSP will be worth $181,195. If instead you contribute the $12,000 as a lump sum at the end of the year, after 10 years your RRSP is worth $173,839. Your RRSP that was funded monthly is worth $7,356.

A Pre-Authorized Contribution Plan (PAC) allows you to automatically make regular investments from your bank account directly into your RRSP. This will allow you to take advantage of investing regularly
and ensures that your money goes to work for you right away.

Self Directed RRSPs
There are basically three types of RRSPs:

• Plans that are limited to cash and guaranteed investment certificates (GICs)
• Plans that invest in mutual funds
• Self-directed plans. The self directed RRSP offers you the maximum investment flexibility.

Self-directed RRSPs offer investors the ability to choose their own preferred mix of products –whether stocks, bonds, mutual funds, guaranteed investment certificates or treasury bills. They also offer
convenience – all investments are shown on a single statement from a single source.
Contribute Securities to your RRSP
Your RRSP contribution does not have to be made in cash. A contribution in kind gives you the benefit of the immediate tax deduction while at the same time keeping the security. You must, however declare any capital gains accrued on the investment at the time of the transfer. If the investment is in a capital loss position, you are not permitted to claim that loss unless you sell the security first and then make the contribution as cash.

Spousal RRSPs
One of the few income splitting opportunities is a spousal RRSP. A spousal RRSP is an account in which you make contributions however, your spouse is the annuitant or the owner of the account. This means that your spouse has control over the account in terms of investment decisions and when payments are received from the account.

The primary reason for establishing a spousal RRSP is to allow for income splitting at some time in the future, usually retirement. Because the assets are considered the property of your spouse, when the funds are withdrawn from the plan, they are taxed at the spouse’s marginal tax rate. The opportunity to income split arises when the spouse would have little other retirement income while the contributing spouse would be at a high marginal tax bracket.

For example, if you will be paying tax at the top marginal tax rate of 46% (Ontario), a $5,000 payment from your RRSP would result in $2,300 of income tax. If your spouse has little retirement income, a
$5,000 payment from a spousal RRSP might be received tax free. This would result in tax savings of $2,700 each year.

Conclusion
Contributing to an RRSP is one of the soundest ways to turn your retirement goal into a reality. The earlier you begin contributing to your RRSP, the larger your retirement nest egg will grow to.  Contact us at (604) 535-4749, or use our contact page.