It is always a good idea to review your accounts to ensure you are achieving the most tax savings available to you each year.

A few accounts that you should consider, if you do not already have them, include: 

TFSA

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: $6,000 for 2022.

If you have not contributed to a TFSA before, you will have $81,500 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 delay 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 withdraws 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 gains 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, 2022 to lower your 2021 taxes.

You can start contributing for the 2022 tax year as early as January 1st 2022 by requesting a current year contribution.

*December 31st, in the year you turn 71, is your last chance to contribute to an RRSP.

Contribution Limit: 18% of employment income in 2021, 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. 

 

RESP

(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 secondary $500 grant from the Government of Canada, resulting in a 20% return on that basis alone.

Using the MWG Global Growth Fund’s annualized five-year return of 18.5%, a $2500 annual contribution over the last five years would have resulted in an education account over $30,000, 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 the RESP account.

Contribution Deadline: None

Contribution Limit: $50,000 lifetime per child. $2,500/year to achieve the maximum grant amount. 

This Focus Stock is written by our CFO, Ryan McCabe.

The purpose of this is to provide insight, transparency and helpful information to our readers. As always, we welcome any feedback or questions you may have on these monthly commentaries.