Rankin Financial Planning Ltd. Copyright 2010 - 2011
Smart Tax Tips:

Maximize Annual RRSP Contributions – Amounts contributed to your RRSP are deductible from income. Also, tax is deferred on all amounts earned inside an RRSP until it is withdrawn as retirement income. In 2009, the allowable contribution is the lower of; 18% of earned income from the preceding year, the annual maximum of 21,000 (In 2010, this maximum will be $22,000 and for each year after 2010, the maximum will be indexed to inflation), or the remaining limit after any company sponsored pension plan contribution. The exact amount that can be contributed in the current year can be found on your previous years Notice of Assessment from Canada Revenue Agency.

Contribute to a Spousal RRSP – Contribute to a spousal RRSP if you expect your retirement income to be higher than that of your spouse or common-law partner. Also, after the age of 71, you can still make contributions to a spousal RRSP if you have earned income and your spouse or common-law partner is not yet 71 years old. You can deposit up to 100% of your own allowable contribution into a spousal RRSP each and every year. This reduces the amount that you can contribute to your own RRSP. However, if your spouse earns less income, this is an efficient way to prepare for income splitting and lower taxation in retirement. An important note is that a contributor's deposit into a spousal RRSP does not affect the other spouse’s contribution room. The spouse can still contribute up to 100% of their own allowable contributions into their own RRSP.

Invest in a Tax Free Savings Accounts (TFSA) – Beginning in 2009, Canadian residents, age 18 and older, can contribute up to $5000 annually to a TFSA. Future contributions will be indexed to inflation. Contributions are not tax deductible. However, income earned in the plans will not be taxable and all withdrawals will be tax-free. In addition, amounts withdrawn from the plan will not be included in computing income for various income-based tax credits or benefits. Also, because the income earned within the plan is tax free, interest paid on money borrowed to invest in a TFSA will not be deductible. Unlike RRSPs, you can use a TFSA as collateral for a loan without adverse tax consequences.

Income Splitting – Income splitting can improve your tax treatment in retirement by creating a lower current tax bracket for the partner who earns a higher income. Due to the progressive tax system and marginal tax rates in Canada, income splitting works because two moderate income streams are taxed less heavily than a single income stream of the same total amount. In addition, if both spouses have income from eligible sources, they’ll both be able to claim the federal pension tax credit.

Income that is eligible for the pension income credit may be split. Generally, this includes any income from a registered pension plan (RPP), a pension from an employer-sponsored defined benefit plan or defined contribution plan. Also, income from a registered retirement savings plan (RRSP) annuity, a registered retirement income fund (RRIF), a LIF (a locked-in RRIF), or a deferred profit sharing plan (DPSP) annuity, if the recipient is 65 years of age or older.
Income that cannot be split includes Old Age Security (OAS), Guaranteed Income Supplement (GIS), Canada Pension Plan / Quebec Pension Plan, RRSP annuities, RRIFs, and DPSP annuities (if recipient is under age 65), RRSP withdrawals, or income from retirement compensation arrangements (RCAs).

Registered Education Savings Plans (RESPs) - An RESP is a tax-efficient way to save for your child’s or grandchild’s education. An investor can contribute up to a lifetime maximum of $50,000, with no limit in each individual year. One of the main benefits of an RESP is the government’s Canada Education Savings Grants (CESG) program. The federal government provides grants to RESP plans under its CESG program. Investors in an RESP qualify for a Basic CESG amount equal to 20% of yearly contributions, up to an annual maximum of $500 per eligible child, with a lifetime maximum of $7,200.

Also, depending on the parents income, the RESP could qualify for additional funds in the form of additional CESG:

Net Family Income
$37,178* or less $37,178* to $74,357* Over $74,357*
CESG on the first $500 of annual RESP contribution 40% = $200 30% = $150 20% = $100
CESG on $501 to $2,500 of annual RESP contribution 20% = $400 20% = $400 20% = $400
Maximum yearly CESG depending
on income and contributions
$600 $550 $550
Lifetime maximum CESG for which you may qualify** $7,200 $7,200 $7,200

* Based on 2007 indexation rates. This amount will be indexed to inflation for subsequent taxation years.
** To receive the lifetime maximum CESG of 7,200 per child, you must have contributed a minimum of $2,500 per year for 15 years or a minimum of $2,000 per year for 18 years or used carry-forward room from missed years.

Family income is not a criteria to receive the Basic CESG of 20% on the first $2,500 of annual contributions in an RESP.  No matter which CESG formula you qualify for, the CESG lifetime limit for each child remains.

Although contributions to an RESP are not tax deductible, income earned within the plan will accumulate on a tax-deferred basis. When withdrawal does occur, the funds are issued to the child and only the accumulated income earned in the plan (such as dividends or interest) is considered the child’s income and is taxed at his or her lower tax rate.

Consider Taking Losses to Offset Gains – If you have capital gains in the year and have accrued losses on other investments, you may want to consider taking a capital loss on some investments to offset your gains on other investment. A capital loss is the result of selling a security for less than its purchase price. Capital losses can be deducted from capital gains in most circumstances. However, only 50% of a total loss can be used to offset your taxable capital gains. Net capital losses can be carried back and applied against net taxable capital gains for previous years, or carried forward indefinitely to offset future net capital gains. Triggering capital losses should be considered within the context of your overall investment plan after consultation with your tax professional.

Take Advantage of Dividend Tax Credits – Individual taxpayers receive preferential tax treatment on dividends received from taxable Canadian corporations. This reflects the fact that corporations pay dividends from after-tax income. The taxpayer then receives a tax credit that offsets the amount of tax the corporation paid. Eligible Canadian dividends are grossed-up by 45% and then the taxpayer receives a federal dividend tax credit in the amount of 19%. Dividend tax credits are also available at varying provincial levels.

Borrow to Invest – Borrowing to invest, called leveraging, may be an attainable strategy when interest rates are low. When deciding whether to leverage, you must consider the interest-rate environment, market performance, and most importantly your own financial situation. This can be a useful tax strategy because a taxpayer may deduct the carrying charges and the interest paid when investing using borrowed funds. Borrowing to invest can be a very useful tool, but there are also considerable risks associated with this investment practice and it should not be done without first speaking to a financial advisor. The use of leverage can magnify gains, but most importantly it can magnify losses.


  Professional Designations
Glen Rankin  
CIM Canadian Investment Manager
PFP Personal Financial Planner
CFP Certified Financial Planner
FMA Financial Management Advisor
FCSI Fellow of the Canadian Securities Institute
Contact Us
Smart Tax Tips
Take the next step
Request a free consultation