With the personal tax filing deadline for 2019 approaching in a few months, it is critical to identify tax planning opportunities that may be used to reduce or defer tax liability. Contributing into RRSP is a useful tool that can help to reduce taxable income and, hence, the tax liability. That’s because RRSP contributions are tax deductible – they can be claimed as a deduction from income in the same year or may be carried forward and claimed as a deduction in a future year, depending on your expected income level.
RRSP is a retirement savings vehicle and merits consideration for the very reason that it allows us to plan for retirement – a financial objective that’s easy to overlook. Earnings within RRSP are tax-free, which allows them to grow faster. Moreover, the ability to contribute into spousal RRSP provides income splitting opportunity between spouses if one of them is taxed in a higher income bracket than the other. It is important to keep in mind that withdrawals from RRSP are taxable, unless used up to a certain amount toward buying your first home or funding your own or your spouse’s (but not your children’s) education.
Regardless of its advantages, RRSP is not the only retirement savings plan and you may use TFSA, non-registered plans and real estate investments to achieve the same end. The choice depends on your personal financial situation and objectives.
Please feel free to reach out to us if you would like to explore your options in view of your specific situation. The last day to contribute toward 2019 RRSP limit is March 2, 2020, so make sure that you have obtained answers to your questions well before the deadline.
J-MAK CPA team
We are a CPA firm in downtown Toronto that provides tax, accounting, corporate and advisory services to businesses. We would be happy to answer any questions that you may have.