Focus on RRSP: Six More Year-End Tax Tips

There is still time to consider your own unique RRSP tax strategy to reduce income and taxes and increase refundable tax credits for your financial gain in 2018. The RRSP contribution deadline is March 1, 2018. Following is the last of our series of a dozen tips to consider as the holidays begin and before this year ends:

1. Cash-strapped? Transfer securities that are in the black in non-registered accounts to the RRSP. Transfers made in December will add the accrued capital gains to your 2017 income, but transfers made in January or February 2018 will add the accrued capital gain to your 2018 income and still allow the deduction for 2017. Don’t transfer shares with losses, as losses on transfers are superficial and not deductible. Otherwise, consider borrowing to invest in your RRSP, but interest on the loan will not be deductible.

2. Avoid penalties on excess RRSP contributions: Clear overpayments up before year-end. The penalty is 1 percent per month for as long as the excess is in the plan. Interest is charged too. However, new contribution room opens up as of January 1 so the penalties may be reduced or eliminated shortly.

3. Pre-retirees: Transfer severance or pension commutation payments to your RRSP to top up your contribution room. Direct transfers must be made by December 31.

4. Unemployed high earners: Make an RRSP contribution to reduce your income, reduce your taxes and avoid EI clawbacks. That clawback begins when your net income exceeds $64,125 in 2017.

5. Turning 72 next year? Make your final RRSP contribution before year-end, before you have to transfer your funds to a RRIF or annuity.

6. Is your OAS being clawed back? Reduce your potential clawback of OAS for 2017 by reducing your net income – making an RRSP contribution is the least painful way to do that (if you’re under 72 or have a spouse who is). The OAS will be clawed back at a rate of 15 cents of every dollar over the individual taxpayer’s net income of $74,788.

Happy holidays everyone!

Additional educational resources: Tax Efficient Retirement Income Planning, Debt and Cash Flow Management, MFA – Retirement and Estate Services Specialist.

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