National Bank Direct Brokerage does not offer tax advice, however, we offer investment products that can help reduce the tax consequences of your investments and therefore help you grow your capital even faster. Here are some of the strategies you may want to consider, depending on your situation and objectives.
What is a TFSA?
The TFSA is an account in which your investments can grow tax free. It quickly became the vehicle of choice for Canadian investors looking to maximize their returns and capital gains.
||TFSA contribution limit
|2009 to 2012
|$5,000 per year
|2013 and 2014
|$5,500 per year
If you have never contributed to a TFSA, you can contribute up to
$52,000 this year.
Also, if you withdraw any amount from your TFSA (which you can do at any time, for any reason), you have the right to redeposit these amounts again during the year following the withdrawal, in addition to your maximum allocated contribution.
If this year you decide to withdraw $1,000 to go on a trip, next year, you could, contribute $5,500 + $1,000.
While TFSA contributions are not tax deductible, the earnings and gains you generate in this account are not taxable, even at the time of withdrawal. And that’s not all… the amounts you withdraw from your TFSA do not affect your guaranteed income supplement (GIS) benefits because they are not considered as income.
The TFSA is an investment vehicle that cannot be overlooked when it comes to retirement planning!
Contributing to an RRSP as early as possible allows you to take full advantage of its benefits: deductible contributions and tax-sheltered compounding.
Assumption: Annual RRSP contribution of a person with a salary of $50,000 that increases by 2% annually. Eff ective annual return of 3.75%.
Contributing early in the year: A winning strategy!
You can make an RRSP contribution anytime up to 60 days after the end of the calendar year to take advantage of the previous year’s tax savings.
Contributions made at the beginning of the fiscal year benefit from up to 14 months of additional tax-free compounding. Obviously, the higher your contribution, the more there is to gain from putting it into the RRSP as soon as possible.
Maximize your contributions
You can contribute up to 18% of your annual income in an RRSP, but note that you have an allowable limit each year. Also, you can exceed this amount by using the unused contribution from previous years.
A self-directed RRSP also allows you to make contributions in kind. The dollar amount of your contribution is equivalent to the fair market value of the securities you contribute in your RRSP at the time of the contribution.
Be careful with tax implications!
If the value of the securities you transfer to your RRSP exceeds their cost, you will face capital gains tax. And conversely, you are not entitled to apply a loss against taxable capital gains if the securities you transfer are now worth less than what you paid for. In this case, it may be best for you to sell your securities to generate a capital loss, and then make your contribution in cash.
At your choice, you could also use this contribution to repurchase the same securities inside your RRSP, as long as you wait at least 30 days between both trades.
All couples can split their pension income, whether or not they have a spousal RRSP. However, contributions made to a spouse’s RRSP offer certain benefits, including:
- The couple can split its income before age 65.
- It doubles the amount that a couple can access under the Home Buyers' Plan and the Lifelong Learning Plan.
- An older spouse still earning income can deduct his or her contributions to a spousal RRSP until the end of the year when he or she turns 71.
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