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RRSP’s Explained
RRSP contributions are tax deductible and offset income tax due in a particular year…
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1. What is an RRSP?
A Registered Retirement Savings Plan is a tax-deferred investment account to assist Canadian’s in preparing for retirement. An RRSP may be set up in an individual’s name, or in the name of their spouse or common law partner. Since 1957, Canadian’s have been contributing and growing funds earmarked for retirement and sheltered from taxation while funds are in RRSP’s.
2. What is my RRSP contribution limit?
The RRSP contribution limit is 18% of your income on your tax return in the previous year with a Cap amount. For 2022 taxation year, the RRSP contribution limit would be a maximum of $29,210. Unused contribution room can be carried forward to use in future year. For exact how much you could contribute this year, please always refer to your current year’s official CRA notice of assessment.
3. Why is it advantageous to contribute to an RRSP?
RRSP contributions are tax deductible and offset income tax due in a particular year. RRSP contributions are permitted from January 1st – March 1st in any given year. Contributions made within the first 60 days of the year, can be applied to the previous year’s tax return or to the current year tax return.
A contribution receipt will be issued by the custodian and can be used for your tax filing in the current year, or carried forward one year.
For example, if you have an income of $100,000 and make a contribution of $10,000, you will reduce your taxable income to $90,000. We recommend consulting your accountant or accessing a deduction calculator to determine an advantageous amount to contribute and maximize your return. At the end of the day, the focus should be on building up your retirement savings and not on the tax return – although it’d always to get money back from the government!
One should aim to contribute an approximate percentage of their earned income to their retirement savings plan, depending upon their financial plan. It’s never too late to start saving, however if you start contributions early in your career, you could have a sizeable retirement fund by the age 71.
4. How do I contribute to my LDIC RRSP?
If you have an existing LDIC RRSP and would like to make a contribution, the following methods may be used:
A. In your online banking portal, please add ‘National Bank Financial’ or ‘BMO Nesbitt Burns Deposits and Regular Contributions’ as a payee. Then indicate your RRSP account number and process a payment. Please advise Client Relations of the transfer so we may monitor the account and confirm when received.
Please note electronic fund transfers typically take 2-3 business days to arrive at LDIC. Contributions that are initiated prior to March 1st will be honoured as a 2021 payment if it is received after March 1st.
B. Mail a cheque payable to ‘National Bank Financial’ or ‘BMO Nesbitt Burns’ to our office at 10 Alcorn Ave, Suite 205, Toronto, ON M4V 3A9
Please note cheques that are post marked prior to March 1st will be honoured as a 2021 payment if it is received after March 1st.
C. If you have a non-registered account and would like to transfer funds or securities in-kind, please email Client Relations and we will be happy to transfer between accounts. Please note all transfers from non-registered accounts are considered a taxable disposition.
We are also able to set up recurring bi-weekly, monthly or quarterly RRSP contributions directly from your bank account. Many find this beneficial in their cash flow planning and saving efforts.
If you don’t have an existing RRSP and would like to open a new account, there is still time! Please reach out to us today to start the new account opening process.
5. Can I withdrawal funds from my RRSP?
Withdrawals are permitted from your RRSP, however the total amount withdrawn is taxable. The amount withdrawn from your RRSP is considered income and a T4RSP will be issued by your custodian. In addition, an at source withholding tax will be applied and remitted to CRA.
The withholding rates are as follows:
10% (5% in Quebec) on amounts up to $5,000
20% (10% in Quebec) on amounts over $5,000 up to and including $15,000
30% (15% in Quebec) on amounts over $15,000
The first time Home Buyers Plan (HBP) allows RRSP account holders to withdraw up to $35,000 tax-free for the purchase of their home. The withdrawal is not considered as income. CRA considers the withdrawal as a loan from your RRSP and the home buyer has 15 years to repay the amount. The repayment period starts the second year after the year when you first withdrew funds from your RRSP(s) for the HBP. For example, if you withdrew funds in 2022, your first year of repayment will be 2024.
The Lifelong Learning Plan (LLP) allows RRSP account holders to withdraw up to $10,000 per calendar year tax-free to finance full time training or education for the account holder, or their spouse or common-law partner. As long as you meet the LLP conditions every year, you can withdraw amounts from your RRSPs until January of the fourth calendar year after the year you made your first LLP withdrawal. You cannot withdraw more than $20,000 in total. The repayment period starts in the second, third, fourth, or fifth year after the year of the first withdrawal and ends when the LLP balance is zero.
6. Are RRSP sales, dividend, interest taxable? Are RRSP administration or management fees tax deductible?
All income and capital gains in an RRSP are not taxable. Any administration or management fees are not tax-deductible.
7. Can I elect a beneficiary on my RRSP?
Beneficiaries can be elected on your registered plan. You may select your spouse or common-law partner, your Estate or any other individual. If you select your spouse, upon death the RRSP assets can roll directly into their RRSP tax free. It doesn’t matter if the spouse doesn’t have available contribution room at that time, a roll over is permitted under CRA regulations. If you select your estate or any other person, the assets will be de-registered and subject to at source withholding tax and terminal income tax. If the Estate is elected, the funds will become part of the Estate assets and subject to probate tax.
8. What happens to my RRSP when I retire?
At the age of 71, all RRSP’s must be converted into Registered Retirement Income Fund’s (RRIF). At that time a new account is opened and all RRSP assets are rolled in-kind to the new RRIF account. On December 31st of the year you turn 71, the market value of the account is taken and a multiplier is used to calculate the minimum amount you must take out of the RRIF in the following year. The amount withdrawn is considered taxable income.
Source: Government of Canada
LDIC Inc. is registered as a Portfolio Manager in all provinces within Canada except for Newfoundland, New Brunswick and Nova Scotia and an Investment Fund Manager registered in Ontario, Quebec and Newfoundland. The materials presented in this web page are for general information purposes only and do not constitute an offer to buy or sell securities. Third party information provided herein has been obtained from sources believed to be accurate, but cannot be guaranteed. The information and opinions expressed herein are current as of the date of this document and LDIC Inc. assumes no obligation to provide updates or advise on further developments. Any personal opinions presented by individuals here in are the views and opinions of the individual and not necessary the views of LDIC Inc. Unauthorized publication or re-distribution of these materials may be illegal; please contact LDIC Inc. for permission prior.
