These tax-free accounts are ideal for all Canadian residents. They are very flexible for both short and long-term investors. If you have non-registered savings, there are very few reasons to have unused contribution room in your TFSA. The earlier in the year you transfer money to max out your TFSA, the earlier your gains are protected from tax.
Contribution Deadline: None
Contribution Limit: $6,500 for 2023.
If you have not contributed to a TFSA before, you will have $88,000 in unused contribution room provided that you reached the age of at least 18 in 2009.
RRSP / Spousal RRSP
RRSP Accounts are a way to defer paying tax to a later time. The amount of tax you would have had to pay can stay invested, and over time, can increase your savings significantly. These accounts are ideal for investors who are in one of their projected highest years of earnings. The goal would be to contribute to the account in a year when you are at your highest tax bracket and defer tax to a year in which you are in a lower tax bracket, ideally when you have little to no employment earnings. Typically, an individual’s highest year of earnings is a year close to retirement. A Spousal RRSP works similarly but with retirement income splitting features to get around CRA’s attribution rules.
The downside of an RRSP is that your withdrawals are taxed as if they were employment income. Thus, you lose the benefits of your gains on investments being taxed as capital gains. In Canada, only 50% of the value of any capital gain is taxable. In addition, you lose the benefit of claiming dividend income, which also enjoys a lower tax rate. Finally, once you use your contribution room, it is gone forever, unlike a TFSA where you regain the room the following year. If you are unsure if a contribution to an RRSP will benefit you in the current year, please contact the Murray Wealth Group team to review your options.
Contribution Deadline: March 1, 2023 to lower your 2022 taxes.
You can start contributing for the 2023 tax year as early as January 1st, 2023, by requesting a current-year contribution. December 31st, in the year you turn 71, is your last chance to contribute to an RRSP.
💡 HOT TIP! If you are considering transferring some of your TFSA to an RRSP to make a 2022 contribution, do so before December 31st and you can regain your TFSA contribution room on January 1st.
Contribution Limit: 18% of employment income in 2022, up to $29,210. This contribution limit carries forward if you are unable to or it does not make tax sense to contribute this year.
(Registered Educational Savings Plan)
If you are a new parent or grandparent, you might consider this tax account to help your young ones save for education costs. Like an RRSP, taxes are deferred on gains to a later time. Ideally, they would be deferred to when the child is in post-secondary education full-time.
The major benefit is that every annual $2500 deposit triggers a $500 grant from the Government of Canada, resulting in a 20% return on that basis alone. Factor in any returns from one of our products such as the Global Growth Fund, which has generated a 10% annualized return over the last five years, and you will have a great start to rising education costs. Note that past performance is no guarantee of future results.
Please contact the MWG team for more information about an RESP account.
Contribution Deadline: None
Contribution Limit: $50,000 lifetime per child. $2,500/year to achieve the maximum grant amount.
💡 Did You Know?
Declaring no income in a year is not necessarily a good thing.
Every Canadian resident is entitled to a non-refundable tax credit for the basic personal amount (BPA). This is the allowable amount of income that you can earn before you must start paying taxes.
For 2022 tax year, the Ontario basic personal amount (BPA) is $11,141, while the federal BPA is $14,398. Non-refundable means you can’t carry the credit over to the next year if you don’t use it.
If you have a spouse that did not earn any income in 2022, you may want to consider generating income before year end by either making a withdrawal from their RRSP or declaring a dividend in a private corporation to avoid paying tax later.