RRSPs are one of the few last minute and flexible deductions available to people with employment income from a T4.
However, if you are an owner of the business and have some control over your salary, you should consider some of the other alternatives first. Even if you can’t control your own salary you should consider all of the options that are available.
A TFSA (Tax Free Savings Account) is an investment account that doesn’t give you a tax deduction when you contribute to it, but it does provide tax-sheltered growth throughout the life of the investment. This can be a substantial benefit compared to an RRSP which does provide a tax deduction when you contribute, but 100% of the income is taxable when it’s withdrawn.
A non registered investment is often chosen as a way to invest for business owners wanting to keep the capital in their corporations. That way they avoid having to record the withdrawals from the company as extra salaries or dividends. It is also available to anyone not wanting to contribute to a registered investment account.
There is also the option of contributing to an RESP for children or grandchildren.
Both of these options are taxable but can be the right choice depending on your circumstances and wishes.
Another option that is not widely known or used but which can be a good addition to some portfolios is investing through life insurance products. These investments are tax sheltered; asset protected and provide insurance protection as an added benefit.
So, RRSPs are widely known and advertised and can be the right choice, but they need to be chosen selectively and used appropriately within your entire portfolio. Consultation with your investment manager and your accountant is the best course of action. Making sure that an RRSP contribution is the right choice before you make it will help you design the best investment portfolio for you.
|Are there $ limits?||Yes||Yes||Yes||No||Yes|
|Are contributions tax deductible?||Yes||No||No||No||No|
|Do savings grow tax free?||No||Yes||No||No||Yes|
|Are withdrawals taxable?||Yes||No||Partly||Partly||Partly|
|Can I get government grants?||No||No||Yes||No||No|
|Do withdrawals affect my other benefits?||Yes||No||Can||Can||Can|
For more detailed information please call KWB at 780-466-6204 or email us by clicking here.
Thanks to David Wickenberg of KWB Chartered Accountants for providing much of this content.