Canadians have until March 1, 2017, to contribute to their RRSPs and claim a deduction off of their 2016 earnings. RRSP contributions reduce your taxable income, providing savings at your top marginal tax rate. Savings are generally recognised through either a refund or reduced balance owing when you file your personal tax return. Additionally, earnings within an RRSP account aren’t taxed until withdrawn, allowing your savings to grow faster. The value of your RRSP account is eventually taxable when you withdraw funds.
With only a few weeks left until the 2016 contribution deadline, now is the time to revisit your savings goals, RRSP contribution made to date, and your RRSP contribution room. It’s important to not go over your contribution room as excess amounts are subject to a penalty of 1% per month.
If you have a spouse in a lower tax bracket, consider opening a spousal RRSP account. Contributions to the account reduce your personal contribution room but will be taxed in your spouse’s hands when amounts are withdrawn from the account.
For more information on RRSPs, see our February 2015 newsletter which is available here.