February 1999 volume 3, issue 1 

RRSPs are your primary retirement savings vehicle, as well as the most significant way to save yourself immediate tax dollars. If you wish to maintain a high standard of living when you retire, you will find that RRSPs will enable you to plan for that lifestyle. Given the uncertainty of government-funded programs such as Old Age Security, the Canada Pension Program and the unpredictable nature of future tax rates, health care costs and inflation, it is wise for you to plan on having more retirement funds available than you think you will need.

The Size of Your Contribution
There have been no changes to RRSP contribution limits. The limit remains at 18% of the prior year's income, to a maximum of $13,500 (in most cases). It is best to plan early how much you will contribute, and make sure you meet your expected contribution. This limit remains in place until 2004. There are adjustments available for unused limits from prior years.

Using Your RRSP for Planning Opportunities

There are many strategies for integrating your RRSP with your estate planning and wealth building activities. Not every strategy will be appropriate for you, but by taking advantage of advice from Wilkinson & Company LLP , you can achieve greater results from your funds.

Contribution Strategies
Many people make their RRSP contributions at the last minute, without any forethought or planning. The benefits from your contributions can be maximized in many ways:

• Use your retiring allowance when you stop working, and take advantage of the mechanism that allows you to put your retiring allowance into an RRSP.
• File personal tax returns for your children, so they can build up an RRSP contribution limit for when they begin to have earned income.
• Consider over-contributing by $2,000. The over contribution is not currently deductible, but it still earns tax-deferred income.
• Contribute early in the year to ensure tax-deferred income is earned sooner.
• Over-contribute towards an RRSP in December of the year you turn 69. In some cases, this can create positive results.
• Owners of private companies that have excess cash can consider bonuses to fund RRSP contributions for employees. This bonus will be deductible to the company and tax neutral to the individuals (with the exception of possible CPP, EHT, EI and WSIB implications).
• Consider a spousal RRSP if you anticipate that your spouse will have the lower income in their retirement years, or if your spouse is under 69 years of age.

Investment Strategies
The funds within your RRSP can be invested in ways other than traditional portfolios. Non-conventional investments include:

• A mortgage for your home.
• Investment in an unrelated, qualifying small business corporation.

Having a mortgage inside your RRSP ensures that your RRSP is earning amounts equal to existing mortgage rates. It is also a mechanism used by individuals with equity in their home to raise funds without borrowing from banks or other conventional lenders.

Withdrawal Strategies
Most withdrawals from RRSPs are taxable, but you can take steps to minimize the taxes paid on these withdrawals. For example:

• Withdrawing RRSP funds in a taxation year in which you have low income.
• Ensuring that no spousal RRSP contributions were made in the year (or previous two years) when a withdrawal from a spousal RRSP occurs.
• Converting some of your RRSP into an annuity once you reach 65 years of age to take advantage of the pension credit.
• Withdrawing the minimum required amount as late as possible in the year to maximize tax sheltered income.
• Consider the effect of the claw-back of Old Age Security benefits which can increase the marginal tax rate by an additional 7 1/2 to 9%.

There are opportunities to access RRSP funds to purchase a home or assist in financing full-time enrollment in an educational institution. These withdrawals essentially represent an interest-free loan from your RRSP, which must be repaid in future years. If the required repayments are not made, the Canada Customs and Revenue Agency will include the missed payments as income over the repayment period.

Take the Time to Plan Now
In the face of rumoured cuts in government funding of benefits for seniors, substantial increases have been made to RRSP limits over the past ten years. This makes it possible for you to plan now to help fund your retirement. It would not be an unlikely scenario for a future government to reduce its funding of benefits to seniors and then place the blame for inadequate retirement funding on those taxpayers who failed to utilize the generous RRSP tax incentives which have been made available.

The tools for your comfortable, secure retirement are readily available. Don't be left uninformed and unprepared. Ask your Wilkinson partner to help you maximize the benefits of your RRSP contributions.

Dan Dickinson, CA, is a member of the Wilkinson Tax Group. He has been with the Firm since 1984, and became a partner in 1993. He completed the CICA In-Depth Tax Course in 1991. Dan specializes in tax planning (including GST) for corporations, individuals, and estates. His practice includes business start-ups, business planning, and the sale of owner/managed businesses.