Take out an RRSP loan
It may be advantageous to borrow to contribute to your RRSP. These loans granted by financial institutions and offered at fixed or variable rates allow you to maximize your RRSP contribution and thus benefit from a higher tax refund than if you had made little or no contribution. As of January 20, 2023, the average interest rate for an RRSP loan was 6.45%.
Be careful, however, because this strategy involves a risk: that of not using your tax refund to repay your loan. “You must be able to repay your RRSP loan over a short period of time, as quickly as possible, and know that if this loan gives you a tax deduction, the interest is not deductible”, underlines the independent financial planner Simon Houle.
Know your METR
Know your what? Your marginal effective tax rate (METR), the measure of the rate of tax burden on additional income. By knowing the impact of an increase in annual income, including socio-fiscal measures, on your tax rate, you will be able to determine whether it would be better to invest more in your RRSPs in order to obtain more great tax savings.
Tax expert and retired professor from the University of Quebec in Montreal Claude Laferrière publishes curves each year showing the real tax rates on additional earned income. These curves can be consulted free of charge on the website of the Center québécois de formation en taxation (CQFF). “We often underestimate the real tax savings that an RRSP contribution can have. When you take into account family allowances, tax credits and all the socio-fiscal measures, it means that lowering your income through an RRSP contribution, for parents of minor children in the middle class in particular, is very, very profitable,” says Charles Hunter-Villeneuve, tax expert and financial planner at National Bank Private Wealth 1859.
Check for undeclared RRSP contributions
Incredible, but true: you may have undeclared RRSP contributions lying dormant somewhere. If so, it could bring you a good loot!
There are people who have indeed made an effort to contribute to their RRSP, but who have never declared it. CPA Simon Elliott discovered it a few years ago.
Charles Hunter-Villeneuve, tax expert and financial planner at National Bank Private Wealth 1859
To verify this, go to the Canada Revenue Agency (CRA) website and log in to “My Account”. Once logged in, select the “Savings and Pension Plans” tab in the left menu. Then choose “History of contributions” made to your RRSPs from previous years and note the RRSP contributions for the last 10 years. Then click on “Tax information slips” (T4 and others) and note the contributions appearing on the RRSP receipts for the last 10 years. By comparing the figures, you may see that amounts have not been declared to the CRA and you can therefore claim them.
If this all sounds too complicated, talk to your accountant or advisor.
Pay yourself first
A well-known strategy for saving, in times of inflation or not, is to pay yourself first – so to save yourself a sum of money every month, or every pay – and spend what is left over. .
PHOTO CHARLES WILLIAM PELLETIER, SPECIAL COLLABORATION
Simon Houle, independent financial planner
If you’re saving for retirement or something else, it’s always better to do it periodically. Someone who always waits for the first 60 days of the year to contribute, there is a good chance that by then there will be no money left, especially in the context of inflation.
Simon Houle, independent financial planner
By contributing to your RRSP on a regular basis, you will be able to know exactly how much you are short of at the end of the year in order to reach your maximum contribution and you can adjust accordingly. If you have no money left to invest at the end of the year due to inflation, you will at least have invested something, which is always better than nothing, experts say.