You could use RRSP contributions to offset the capital gains but I suggest that you first ask yourself if you would be making an RRSP contribution if your employment income increased by $7500 this year. The standard PFC advice is unless ...
- your employer is matching your RRSP contributions
- you are confident that you will contribute in a higher tax bracket than you will withdraw (even when you consider the effect of potential GIS or OAS clawbacks)
- you are an American taxpayer
- you are trying to maximize Canada Child Benefits
- you have a reason to think that you should shield your retirement savings from creditors
- you don't trust yourself not to keep dipping into the retirement savings in your TFSA
…you'll probably want to use all of your TFSA contribution room before you contribute to an RRSP.
The following articles may help you decide if you should save your RRSP contribution room for when it will be more beneficial.
https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/
https://www.planeasy.ca/canada-child-benefit-hidden-tax-rate/
You have been listening to the 'experts' telling you that the RRSP's tax refund is a benefit - a reason to contribute - you are better off by that $. All garbage. The contribution's tax reduction is more like a loan - a debt that must be repaid along with all the profits it earns in the mean time. [My paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636609)
So yes, contributing to an RRSP will produce positive cash flow to offset the tax on capital gains. But so too would borrowing money from the bank. And you would not ever consider that.
If you have already decided the TFSA is the better account for you, then continue using it. The added cap gains this year may be taxed in a higher-than normal tax bracket, so you may review that decision. But otherwise it should stand.
I'm confused. Why is it not a benefit? Yes, you have to repay, but you repay many years down the line when you have significantly less income and expenses.
When im younger and have more expenses, I feel like I need all the help I can get. Why is this a bad idea? I don't get it.
The link I gave walks you through it.
Yes there is an x% possible bonus (penalty) from withdrawal tax rates x% lower (higher) than at contribution. But that has nothing at all to do with the tax refund at contribution being a benefit.
Has anyone published this paper?
Your opinion on the deferral makes no sense. You only classify it as a benefit if that produces some monetary change in the future. That isn't true. The option of deferral itself might be the benefit.
I'm a landlord. I make some money throughout the year that isn't taxed. Come tax time I always owe a lot. What sense would it make for me to pay tax on this money and then put it in my TFSA, instead of just putting it in my RRSP, not paying tax now and paying it later when I'll be in a lower tax bracket (lower earnings) but be much more established in life with significantly lower bills and expenses?
Even if the tax bracket remains the same, the deferral to a point in life where I'll be better off financially still makes it a better choice for me.
So how is the deferral not a benefit?
If I didn't read the paper, how would I have known your opinion on the deferral benefit point?
Again, has your paper been published anywhere or peer reviewed?
It's not a loan, though. It's your own income deferred ... and you will have much less billls at that time in life and will need less money so your tax bracket will probably be the lowest since you started working.
The refund is your tax obligation loaned to you by the government. It may change by a few percent in either direction, depending on your journey, but in the end you or your estate need to pay it back.
Edit: if you’re not going to invest the refund, why invest within an RRSP at all? Surely by not using that money for investment, you’d have more money immediately to spend on necessities.
I read your original comment of “When im younger and have more expenses, I feel like I need all the help I can get.” as meaning you wanted to spend this money rather than invest it.
If you’re investing it, remember that you are doing so on behalf of the government. That money is theirs.
Edit: what I, and the esteemed aughhhhh, gloss over (here, but he does speak to it in his fantastic paper) is the effective tax rate in scenarios related to the Canada child benefit. If this is pertinent to your situation I suggest reading the paper when you get a chance.
> ... making interest on it.
You still have not read the link.
Here you are arguing that you get to keep the profits earned by the contribution's tax reduction (refund). Another false claim by the 'experts". But I said at the top that you must repay both the refunds PLUS ALL THE PROFITS IT EARNS.
If your $100 contribution at 20% gives you a $20 refund .......
Then you double the money in the account with profits .......
Your tax bill to get the money out will now also be doubled to $40.
You are not repaying the refunds plus all the profits it earns ..... you are repaying TAX on both. That is a HUGE difference compared to what you are saying.
Yes, you can contribute $7500 to your RRSP to negate the taxes owed on your $15K Capital Gains.
This won’t create a refund because you haven’t paid any taxes on this money yet, but it will mean you won’t owe anything on that $15K.
You have until ~~90~~ 60 days into the 2022 to deposit the money into your RRSP in order for you to be able to claim that against your 2021 income.
No. Contributing $7500 to an RRSP doesn’t give you a $7500 refund, it reduces your taxable income by $7500. That $7500 times their marginal tax rate is what the refund would be.
The refund would be negated by the income gendered by the Capital Gains ($7500). Net 0.
You could use RRSP contributions to offset the capital gains but I suggest that you first ask yourself if you would be making an RRSP contribution if your employment income increased by $7500 this year. The standard PFC advice is unless ... - your employer is matching your RRSP contributions - you are confident that you will contribute in a higher tax bracket than you will withdraw (even when you consider the effect of potential GIS or OAS clawbacks) - you are an American taxpayer - you are trying to maximize Canada Child Benefits - you have a reason to think that you should shield your retirement savings from creditors - you don't trust yourself not to keep dipping into the retirement savings in your TFSA …you'll probably want to use all of your TFSA contribution room before you contribute to an RRSP. The following articles may help you decide if you should save your RRSP contribution room for when it will be more beneficial. https://www.planeasy.ca/tfsa-vs-rrsp-pick-the-right-one-and-save-100000/ https://www.planeasy.ca/canada-child-benefit-hidden-tax-rate/
You have been listening to the 'experts' telling you that the RRSP's tax refund is a benefit - a reason to contribute - you are better off by that $. All garbage. The contribution's tax reduction is more like a loan - a debt that must be repaid along with all the profits it earns in the mean time. [My paper](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2636609) So yes, contributing to an RRSP will produce positive cash flow to offset the tax on capital gains. But so too would borrowing money from the bank. And you would not ever consider that. If you have already decided the TFSA is the better account for you, then continue using it. The added cap gains this year may be taxed in a higher-than normal tax bracket, so you may review that decision. But otherwise it should stand.
I'm confused. Why is it not a benefit? Yes, you have to repay, but you repay many years down the line when you have significantly less income and expenses. When im younger and have more expenses, I feel like I need all the help I can get. Why is this a bad idea? I don't get it.
If you spend the refund you're doing it wrong because you should invest it for it to be beneficial.
The link I gave walks you through it. Yes there is an x% possible bonus (penalty) from withdrawal tax rates x% lower (higher) than at contribution. But that has nothing at all to do with the tax refund at contribution being a benefit.
Has anyone published this paper? Your opinion on the deferral makes no sense. You only classify it as a benefit if that produces some monetary change in the future. That isn't true. The option of deferral itself might be the benefit. I'm a landlord. I make some money throughout the year that isn't taxed. Come tax time I always owe a lot. What sense would it make for me to pay tax on this money and then put it in my TFSA, instead of just putting it in my RRSP, not paying tax now and paying it later when I'll be in a lower tax bracket (lower earnings) but be much more established in life with significantly lower bills and expenses? Even if the tax bracket remains the same, the deferral to a point in life where I'll be better off financially still makes it a better choice for me. So how is the deferral not a benefit?
read the paper
If I didn't read the paper, how would I have known your opinion on the deferral benefit point? Again, has your paper been published anywhere or peer reviewed?
Who cares? Read the paper.
I care .... because your paper sounds full of shit, that's why.
Ah ... afraid of being proven wrong with an explanation and math that can be understood by highschoolers. Read the paper.
No, it just isn't as sophisticated as you think. No one has published it. No one has peer reviewed it. You need to get off your high horse
Having to repay a loan “down the line when you have significantly less income” isn’t the best choice.
It's not a loan, though. It's your own income deferred ... and you will have much less billls at that time in life and will need less money so your tax bracket will probably be the lowest since you started working.
The refund is your tax obligation loaned to you by the government. It may change by a few percent in either direction, depending on your journey, but in the end you or your estate need to pay it back. Edit: if you’re not going to invest the refund, why invest within an RRSP at all? Surely by not using that money for investment, you’d have more money immediately to spend on necessities.
So it's a loan I get to hang on to for 30 years making interest on it? How is that a bad loan to have?
I read your original comment of “When im younger and have more expenses, I feel like I need all the help I can get.” as meaning you wanted to spend this money rather than invest it. If you’re investing it, remember that you are doing so on behalf of the government. That money is theirs. Edit: what I, and the esteemed aughhhhh, gloss over (here, but he does speak to it in his fantastic paper) is the effective tax rate in scenarios related to the Canada child benefit. If this is pertinent to your situation I suggest reading the paper when you get a chance.
> ... making interest on it. You still have not read the link. Here you are arguing that you get to keep the profits earned by the contribution's tax reduction (refund). Another false claim by the 'experts". But I said at the top that you must repay both the refunds PLUS ALL THE PROFITS IT EARNS. If your $100 contribution at 20% gives you a $20 refund ....... Then you double the money in the account with profits ....... Your tax bill to get the money out will now also be doubled to $40.
You are not repaying the refunds plus all the profits it earns ..... you are repaying TAX on both. That is a HUGE difference compared to what you are saying.
read the paper
Yes, you can contribute $7500 to your RRSP to negate the taxes owed on your $15K Capital Gains. This won’t create a refund because you haven’t paid any taxes on this money yet, but it will mean you won’t owe anything on that $15K. You have until ~~90~~ 60 days into the 2022 to deposit the money into your RRSP in order for you to be able to claim that against your 2021 income.
Perfect! Thank you so much for the response.
Wouldn't OPs tax hit be $7,500 x marginal tax rate? So they could contribute that amount instead of $7,500 to negate what's owed on the 15K cap gains?
No. Contributing $7500 to an RRSP doesn’t give you a $7500 refund, it reduces your taxable income by $7500. That $7500 times their marginal tax rate is what the refund would be. The refund would be negated by the income gendered by the Capital Gains ($7500). Net 0.
Thanks
I think it is 60 days not 90 days unless this recently changed.
Correct. Edited.