Wealth Management
There’s more to building wealth than investing money. You also need to establish a thorough and realistic plan to carry out your projects through the years.
There’s more to building wealth than investing money. You also need to establish a thorough and realistic plan to carry out your projects through the years.
Taxes are one of life’s certainties, but there are ways to minimize your tax burden, at the time of the initial investment and upon its disbursement.
Imagine having the chance to receive an income without having to pay taxes.
While having to pay taxes is a certainty, there are several investment strategies that can help you minimize your tax burden, whether at the time of the investment or upon its disbursement.
Capital gains and investment income are taxed differently depending on the investment product you use. With good planning, you can ensure you choose investment vehicles that reflect your tax situation so that you can grow your wealth more efficiently.
We will help you analyze your portfolio and identify ways to reduce your tax burden.
For instance, we may advise you on income splitting – with your spouse or children – or suggest you invest in a registered plan.
With a registered retirement savings plan, you can defer paying taxes on invested money until you retire.
The income and capital gains generated by your investments grow tax-free until you start making withdrawals.
Since your retirement tax rate is likely to be lower than you're working tax rate, you have more freedom to maintain your lifestyle.
Who can contribute to an RRSP?
Anyone aged 71 years or younger with earned income in Canada:
Tips and strategies
Locked-in Retirement Account (LIRA) & Locked-in RRSP
If you have a Registered Pension Plan (RPP) under provincial jurisdiction, you can transfer that money into a LIRA.
If you have an RPP under federal jurisdiction, you can transfer that money into a Locked-in RRSP.
Unlike a regular RRSP, and except under specific situations (death, reduced life expectancy, non-residency for two years), money cannot be directly withdrawn from a LIRA/Locked-in RRSP.
Instead, you have to convert the plan into a Life Income Fund (LIF) or life annuity before you can start withdrawing funds.
The deadline for converting a LIRA/Locked-in RRSP is December 31st of the year in which you turn 71.
The Tax Free Savings Account (TFSA) is an investment vehicle that enables you to build up your savings in a tax-free environment, regardless of your annual income level.
Tax-free savings
The investment income you earn in your TFSA is not taxable, even when you make withdrawals.
The income earned in the TFSA and the withdrawals made from the TFSA do not affect your eligibility for government benefits and credits (e.g. Guaranteed Income Supplement, Old Age Security Pension).
Flexible savings
The TFSA helps you meet your savings needs throughout your life (not only after retirement). You can withdraw funds from your TFSA at any time for any purpose. If you do not make the maximum annual contribution, your unused contribution room is carried forward to subsequent years.
Who qualifies for a TFSA?
All individuals aged 18 and over who are Canadian residents qualify for a TFSA, and regardless of your current situation the TFSA provides many advantages.
The answer is in your current tax rate and your tax rate at retirement.
TFSA vs. RRSP table
| Purpose | TFSA | RRSP |
|---|---|---|
| Main purpose | Meets your savings needs throughout your life (not only after retirement) | Mainly meets retirement needs |
| Tax treatment | Both savings vehicles offer tax advantages but there are some minor differences between them | |
| Eligibility | TFSA | RRSP |
| Minimum age | 18 | None |
| Maximum age | None | 71 |
| Maturity date (termination) | None | December 31 of the year in which you turn 71 years of age |
| Contribution Room | TFSA | RRSP |
| Annual contribution limit |
$5,000 (2011) $5,000 (2012) $5,500 (2013) $5,500 (2014) $10 000 (2015) $5 500 (2016) |
$22,450 (2011) $22,970 (2012) $23,820 (2013) $24,270 (2014) $24 930 (2015) $25 370 (2016) |
| Contribution limit as a % of earned income | No matter how much you earn, the contribution limit is $5,000 | 18% of earned income (Subject to the annual contribution limit) |
| Excess contributions | Penalty of 1% per month | Penalty of 1% per month (Up to $2,000 in excess contributions are allowed without penalty) |
| Unused contribution room carried forward | From year to year | From year to year |
| Contribution room restored after withdrawals | Starting the following year | |
| Contribution limit indexed? | According to the Consumer Price index (CPI), rounded to the nearest $500 | Based on the increase in the Average Industrial Wage (AIW) |
| Spousal contributions? | No, but one spouse can give the other spouse the funds needed for his/her contribution without being subject to income attribution rules | |
| Transfer to spouse in the event of relationship breakdown / death? | Without affecting contribution room | Without affecting contribution room |
| Tax rules | TFSA | RRSP |
| Tax deductible contributions? | TFSA contributions cannot be deducted from income. | |
| Taxable income | ||
| Withdrawals taxable? | You can withdraw funds from your TFSA at any time for any purpose without having to pay tax on the withdrawals. | You can withdraw funds from your RRSP at any time for any purpose but you have to pay tax on the withdrawals. |
| Minimum withdrawal | After you convert your RRSP into a RRIF | |
| Impact on income-tested government retirement benefits and tax credits (claw back of Old Age Security and Guaranteed Income Supplement) | Does not reduce benefits or tax credits. | May reduce benefits and tax credits |
| Tax impact in the event of death |
If transferred to the spouse. The value of the TFSA is never taxable.
|
If rolled over to the spouse |
Plan for your children's future
With a Registered Education Savings Plan (RESP), you can set money aside for your children, money that will grow in a tax-sheltered environment until your children need it for post-secondary studies. Once they enter a post-secondary institution, that money will allow them to focus more on studies and less on part-time jobs.
RESP Features
Available Plans
| Individual RESP | Family RESP | |
|---|---|---|
| Beneficiaries | A single beneficiary regardless of relation to subscriber. | One or more beneficiaries, who must be related to the subscriber by blood or adoption. |
| Age limit | No age limit. | The beneficiaries must be under 31 years of age. |
| Breakdown among beneficiaries | Contributions, withdrawals and Educational Assistance Payments apply to a single beneficiary. | Contributions are split by the subscriber among the beneficiaries. |
| If the child does not pursue post-secondary education | A new beneficiary may be designated. | The other beneficiaries can split the contributions. |
Start Saving Today - An Example
It's best to start investing in the years immediately following a child's birth to be able to take full advantage of government grants and to establish a solid investment strategy.
* The figures in this graph are assumptions only and are provided to illustrate the potential advantages of this product under identical conditions.
Open an RESP Account
Step 1: Obtain a Social Insurance Number (SIN) for your child
Step 2: Contact us
A registered disability savings plan (RDSP) is a savings plan that is intended to help parents and others save for the long term financial security of a person who is eligible for the disability tax credit.
Contributions to an RDSP are not tax deductible and can be made until the end of the year in which the beneficiary turns 59. Contributions that are withdrawn are not included in income for the beneficiary when they are paid out of an RDSP. However, the Canada disability savings grant, the Canada disability savings bond, investment income earned in the plan, and rollover amounts are included in the beneficiary's income for tax purposes when they are paid out of the RDSP.
Who can become a beneficiary of an RDSP?
You can designate an individual as beneficiary if the individual:
A beneficiary can only have one RDSP at any given time, although this RDSP can have several plan holders throughout its existence, and it can have more than one plan holder at any given time.
For more information, please refer to CRA web site: http://www.cra-arc.gc.ca/gncy/bdgt/2012/qa08-eng.html
When I'm ready to retire...
What will happen to my RRSP?
If you have a Registered Retirement Savings Plan (RRSP), you are required to collapse it no later than December 31 of the year in which you turn 71.
A RRIF is an extension of your RRSP
RRIFs are designed to provide retirement income while allowing income taxes to be deferred. Like an RRSP, a RRIF lets you invest your savings as you wish by choosing from our wide range of investment solutions.
Advantages of a RRIF
MINIMUM ANNUAL WITHDRAWAL
For all RRIFs opened after 1992, the following formulas are used to calculate that required minimum withdrawal:
Up to age 70:
| Minimum withdrawal = |
Market value of the RRIF at January 1
90 minus your age at January 1 |
Example:
If, on January 1 of this year, you were 65 and had a RRIF worth $200,000, your minimum withdrawal for this year would be:
|
$200,000
90-65 |
= $8,000 |
As of age 71:
| Your age at January 1 | Min. Annual Withdrawal (% of RRIF assets) | Your age at January 1 | Min. Annual Withdrawal (% of RRIF assets) |
|---|---|---|---|
| 71 | 5,28% | 83 | 7,71% |
| 72 | 5,40% | 84 | 8,08% |
| 73 | 5,53% | 85 | 8,51% |
| 74 | 5,67% | 86 | 8,99% |
| 75 | 5,82% | 87 | 9,55% |
| 76 | 5,98% | 88 | 10,21% |
| 77 | 6,17% | 89 | 10,99% |
| 78 | 6,36% | 90 | 11,92% |
| 79 | 6,58% | 91 | 13,06% |
| 80 | 6,82% | 92 | 14,49% |
| 81 | 7,08% | 93 | 16,34% |
| 82 | 7,38% | 94 | 18,79% |
| 95+ | 20,00% |
You have to convert your LIRA/Locked-in RRSP into a LIF
LIFs share many of the features of RRIFs except that LIFs are subject to a maximum annual payment.
Advantages of a LIF
Income taxes on payments exceeding the minimum
Payments from your RRIF or LIF that exceed the minimum annual payment are subject to withholding tax. Any amount you receive from either type of plan must be reported on your income tax return for the year in which the payment was made. You could be entitled to a refund, or you could end up paying additional tax.
If you receive only the minimum annual payment, the money in your RRIF or LIF can continue to grow tax-free. If however, you rely on your RRIF or LIF as your main source of income, you may need larger payments (subject to a maximum annual payment for LIFs).
Spousal Age
You can establish your minimum annual payment from your RRIF or LIF based on your spouse’s age if he/she is younger than you are. If this is the case, your minimum payment rate will be lower, which means you can defer taxes for longer. However, you will have to make your decision before you start receiving your benefits and you will not be able to revoke that decision.
Important Dates
There is no minimum age for opening a RRIF or LIF but you have to convert your RRSP into a RRIF or convert your LIRA/Locked-in RRSP into a LIF no later than December 31 of the year you turn 71.
Bear in mind that you must receive your first payment no later than December 31 of the year you turn 72.
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Quebec, Ontario, Alberta, Nouveau-Brunswick, Saskatchewan.
