Tax Tips for RRSP Season
TORONTO, Feb. 25 /CNW/ - Your RRSP can do much more than help you plan
for your retirement - your RRSP can produce tax benefits that can be
advantageous to you long before you retire. With the February 29, 2008,
deadline for 2007 tax-deductible contributions coming up soon, KPMG offers
options you may want to consider to help you get the most benefits from your
"Taxpayers can reap greater benefits by properly timing when and how they
use their RRSPs," advises Paul Woolford, Partner in KPMG's Enterprise
services. "With the recent increases to contribution limits and additional
options, such as the Lifelong Learning Plan for financing education, the
government has made it easier for Canadians to enhance the use of this
retirement vehicle. However, people who are well informed about the ins and
outs of RRSPs and taxes can benefit even more."
The following ideas will help remind you of some of your options for
getting the most out of your RRSP.
- Consider the preferred tax treatment for dividends and capital gains
on investments held outside your RRSP when determining which types of
assets to hold inside your RRSP.
- Consider a spousal RRSP for retirement income splitting if you expect
your spouse's retirement income to be lower than yours. Keep in mind
that your retirement income from your matured RRSP may qualify for
new spousal income splitting rules.
- A spousal RRSP may also provide an opportunity for a longer period of
tax-free growth for your contributions if your spouse is younger than
- Make your maximum allowable contribution for 2007 to enhance your tax
benefits. You can contribute 18 percent of your "earned income" in
2006, or $19,000, whichever is less (if you're a pension plan member,
your maximum contribution may be reduced).
- Contribute early for 2008; rather than waiting until the March 1,
2009, deadline, consider making your 2008 contribution now, or as
early as you can, to begin accumulating tax-free income on the
contribution as soon as possible. For 2008, you can contribute 18
percent of your earned income in 2007, or $20,000, whichever is less
(again, if you're a pension plan member, your maximum contribution
may be reduced).
- If you are turning 71 in 2008, consider options for maturing your
RRSP, and remember to make your final contribution by December 31,
- Consider Home Buyers' Plan withdrawals to buy your first home, or
Lifelong Learning Plan withdrawals to advance your training or post-
secondary education, but be sure to weigh the loss of RRSP growth.
Time Your Deductions to Increase Tax Benefits
The tax benefits you'll gain on your 2007 return by making your 2007 RRSP
contribution by February 29, 2008, will depend on your marginal tax rate.
Generally, if your income is taxed at the top rate (i.e., about 46 percent,
depending on your province), your RRSP deduction will create current tax
benefits of about 46 percent of the amount you contribute.
If your income falls into one of the lower three brackets in 2007, the
deduction will be worth proportionally less: about 42 percent of the amount
you contribute if you are in the third bracket, about 35 percent if you are in
the second bracket, and about 24 percent if you are in the lowest bracket. In
light of the different marginal tax rates, keep in mind the following ways in
which you can benefit:
- In a low-income year, consider making your maximum possible RRSP
contribution, but deferring claiming the deduction until a later year
when your income is taxed at a higher marginal rate. This approach
can help increase the tax-free growth of funds while also enhancing
- Similarly, if you're making a large RRSP catch-up contribution,
consider only claiming enough of the resulting deduction to reduce
your taxable income in the top tax brackets. You can carry forward
the remaining deduction for greater tax benefits in a future year
against income that is taxed in the higher tax brackets.
Of course, these ideas are not an exhaustive list of your RRSP tax
planning options. You can find more information on RRSPs and other tax and
financial planning matters in KPMG's Tax Planning for You and Your Family
2008, now available in bookstores across Canada or directly from the
publisher, Thomson Carswell (telephone: 1-800-387-5351).
"Planning is essential to making the most of your finances and this book
is designed to help taxpayers manage their tax situation more effectively,"
About KPMG in Canada
KPMG LLP, a Canadian limited liability partnership established under the
laws of Ontario, is the Canadian member firm affiliated with KPMG
International, a global network of professional firms providing Audit, Tax,
and Advisory services. Member firms operate in 145 countries and have more
than 123,000 professionals working around the world.
The independent member firms of the KPMG network are affiliated with KPMG
International, a Swiss cooperative. Each KPMG firm is a legally distinct and
separate entity, and describes itself as such.
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