I cannot believe it is time to start considering our annual Registered Retirement Savings Plan (RRSP) contributions. For many of us it is a simple decision; maximise our contributions to the extent funds permit. CRA sets out our contribution limit on our prior year Notice of Assessment. Armed with that information we have everything we need. Our big decision might be deciding whether to borrow to top up our contribution.
However, for some it is not that simple. This is especially the case for individuals who are shareholders of controlled corporations. Under this scenario, the decision becomes more complicated. This is primarily due to the different tax rates between individuals and corporations. It is further complicated by the manner in which the shareholder extracts funds from the company. Dividends do not create “earned income” for RRSP purposes. Therefore, they do not create RRSP contribution room. It is imperative that you review your overall strategy with your tax advisor and determine the best course of action.
Too often, we fixate on the tax advantages associated with RRSPs. Do not fall into this trap. It is incumbent on you to look beyond the tax savings and determine the best way to invest the funds inside your RRSP. As nice as the tax advantages are, they will not help you if you do not properly invest the funds for annual growth. Everyone gets the tax advantage but too many do not get the advantage of a properly built portfolio that grows with the markets over time. Talk to your representative at Welch LLP about our Family Wealth Advisory group.
