Submitted by Kaft

With the deadline for most tax slips to be filed at the end of this month, we will be receiving slips and starting to think about income tax. Two of the most powerful tools available to you for tax planning are the RRSP and TFSA.
RRSP – Registered Retirement Savings Plan

  • These are tax exempt investments registered with CRA through financial institutions. They are designed to defer income and help save for retirement.

    -Making contributions to an RRSP reduces your taxable income in the period of the contribution was made, decreasing the amount of taxes payable.

    -Contributions to RRSPs for a given tax year are those made in the last 10 months of the year, and contributions made in the first 60 days of the following year. The deadline for contributions for deduction on the 2019 tax year is March 2, 2020.

    -The amount you can invest in an RRSP in a year is limited to your RRSP Deduction Limit. This limit is based on your earned income in prior years and previous contributions to RRSPs

    -Investing more than your contribution limit allows will lead to expensive penalties and interest charges on amounts invested over the limit. Your RRSP Contribution limit can be found on your last year’s Notice of assessment from CRA, on your online CRA account, or you can ask your accountant.

    -Withdrawing funds from an RRSP will result in the withdrawn amount being added back to taxable income in the year of withdrawal; thus it’s generally mandatory taxes are deducted on withdrawals.

    -You can contribute to an RRSP up to the age of 71, after which it becomes mandatory that funds are transferred to a Registered Retirement Income Fund (RRIF) and a minimum amount is taken as income each year

    -See the following link to CRA’s page for more information on RRSPs


    TFSA – Tax Free Savings Accounts
  • As the name suggests, these are savings and investment accounts that are not taxed on the interest and gains they earn.

    -Contributions to a TFSA are limited to an annual amount plus any unused contribution room from prior years Contributing more than your limit to a TFSA results in penalties. To see your available TFSA contribution room check your online CRA account, or contact your accountant to check for you.

    -There is no deduction from income for contributing to a TFSA, but there is also no income added on withdrawals from a TFSA

    -Making a withdrawal from a TFSA increases the contribution room by the amount withdrawn.

    -To learn more about TFSAs see CRA websites page below


    What is better, TFSA or RRSP?
  • What is better really depends on the individual’s circumstances and investing in either should be looked at carefully.

    At KAFT we encourage our clients to form a proactive tax plan and provide advice on what works best for your individual needs.

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