Personal Tax Strategy

Tax tip of the month

Have you exceeded the amount you need to save in your RRSP?
Consider implementing an RRSP freeze

Currently the capital gains inclusion rate is 50%, but withdrawals from your RRSP are 100% taxable in the year of withdrawal. One way to reduce your tax load is to complement your RRSP with non-registered investments that will provide tax-efficient income in retirement.

If you are in the fortunate position of feeling you have too much money inside your RRSP, you may want to consider implementing an RRSP freeze strategy, which will allow you to reduce the amount inside your RRSP on a tax-free basis. This strategy involves borrowing a lump sum of money and investing it in a non-registered account. The interest costs on the loan are tax deductible. You then remove from your RRSP the value of the interest payment on the loan. In essence, the taxes payable on the RRSP withdrawal is offset by the interest deduction from the borrowed money. This can allow you to effectively freeze the value of your registered plan by ceasing to make contributions and making withdrawals annually instead.

Your financial advisor can advise you as to whether this strategy makes sense for you.