Retirement Planning: RRSP Strategy

When it comes to tax planning, is obtaining a loan to purchase an RRSP a good idea?

“An RRSP loan can be advantageous if you have accumulated a significant amount of unused RRSP room because it allows you to maximize your contribution,” says Chartered Accountant Tina A. Di Vito, Director of Retirement Strategies, BMO Financial Group in Toronto.

“For example, say you have unused room of $18,500 and your marginal tax rate is 46 per cent – if you can come up with $10,000 yourself and borrow $8,500, for a total contribution of $18,500, the RRSP contribution will generate a tax refund of $8,500 – just enough for you to pay off the entire loan.”

Don’t forget your RRSP if working abroad

If you’re a Canadian expat or someone who commutes to work in the United States, you can still contribute a portion of your earnings to an RRSP.

“Many countries, including the United States, tax people on their citizenship. But in Canada, we’re taxed based on residency,” explains Walter Benzinger, a Chartered Accountant with Deloitte & Touche LLP in Windsor.

Residency is question of fact, Benzinger says, and the Canada Revenue Agency will consider things like the location of your home, your family members and your bank accounts in determining whether you are, in fact, a Canadian resident who is eligible to contribute to RRSPs and reap the associated tax savings.

“Commuters who live in Canada but cross the border to work in the U.S. must pay American federal, state and local taxes,” Benzinger continues. “You’ll receive a W2 form that states your earnings, and you must file a non-resident tax return called a 1040NR. You’ll need to file a Canadian T1 return as well, but don’t worry. There’s no double-taxing. Canada gives you full credit for any foreign taxes you pay, including things like the U.S.


Source: The Institute of Chartered Accountants of Ontario


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