Rrsp deadline 2022?
Registered retirement savings plans (RRSPs) let Canadians save for retirement in a tax-deferred way. This means they allow your investments to grow completely tax free until you withdraw them, while providing a tax break when you make the contributions. The money you invest in your RRSP reduces your income for tax purposes, so, normally, you would receive a tax refund.
If you make the RRSP deadline 2022: Some RRSP tax refund examples
Not surprisingly, many Canadians want to receive as large a tax refund as possible, so it makes sense for them to contribute the maximum they can before the RRSP contribution deadline.
While the Canadian tax year for individuals ends on December 31, you can make RRSP contributions right up until the RRSP deadline for the 2022 tax year, which is March 1, 2023. The reason for extending this contribution time limit is to give you the chance to work out how much you earned last year, so you can maximize your contribution.
If you have the available money to save, making the RRSP contribution deadline means you’ll receive your tax refund a whole year earlier than if you miss it. That money can also be invested in your RRSP, which means it would have an extra year to grow, tax-deferred.
It’s important to remember though, that making the RRSP deadline for the 2022 tax year is only worthwhile if RRSPs are a good option for your personal financial circumstances. While you do get a tax break when contributing to your RRSP, you will be taxed when you eventually start to withdraw money from it, after you retire. If your retirement income is likely to be similar to what you currently earn, the tax break may not be beneficial in the long run.
In fact, if your current income and tax rate are low, it could make more sense to invest in a TFSA instead. You won’t receive an immediate tax break, but your investments will still grow tax-free, and you won’t be taxed when you withdraw from it.
If you’re not sure what kind of investment will best suit your needs, you can still make a contribution before the RRSP deadline and put the money in a liquid RRSP cash savings account. You can then easily switch the money to any other RRSP-qualifying investment, at any time after the deadline.
It’s not too devastating if you miss the deadline. You will have to wait an extra year to receive your tax refund and miss out on that money growing over the next year. However, if it means you don’t use up your RRSP contribution limit, that amount can be rolled over and used up next year.
If you’re determined to make the RRSP deadline, there are plenty of ways to invest your money, far beyond an RRSP cash savings account. There are rules surrounding which investments you can have in an RRSP, which the CRA calls “qualified” investments. For example, stocks need to trade on at least one “designated” stock exchange, as determined by Canada’s Finance Department.
Before investing, it pays to check with your IG Consultant or financial institution first, as there can be tax consequences and penalties for having non-qualified investments in your RRSP. Some of the investments you can hold in your RRSP include:
Mutual funds: These are groups of stocks and/or bonds (often containing hundreds of assets), which have been selected by investment managers. They give your portfolio considerable diversification, among other benefits.
ETFs: These are similar to mutual funds, except they are traded on stock exchanges, often have less ongoing involvement from investment managers and usually come with lower management fees.
Bonds: These are loans to governments and companies, and so, while the potential returns they offer are usually lower than what you might get with stocks, the risks are usually less.
Stocks: These are shares in publicly traded companies (listed on designated stock exchanges).
Most people investing in RRSPs need a significant rate of return so that their money grows sufficiently by the time they retire. Therefore, your RRSP portfolio should have an adequate percentage of stocks, mutual funds and/or ETFs so that it can provide you with a comfortable retirement.
Talk to your IG Consultant before the RRSP deadline for 2022 of March 1 to discuss the options that will work best for your unique financial situation. If you don’t have an IG Consultant, you can find one here.
March 1, 2023 is the deadline for contributing to an RRSP for the 2022 tax year. December 31 of the year you turn 71 years of age is the last day you can contribute to your own RRSP.
A Register Retirement Saving Plan, also known as RRSP, is a retirement investment plan system set up by the Canada Revenue Agency in 1957 that allows individuals to accumulate savings for retirement on a tax-sheltered basis. This includes investments such as stocks, bonds, mutual funds, etc.
RRSP is a type of account that is specifically set up to provide favorable tax treatment for people who use the account to invest money. This motivates individuals to save money for retirement and provides greater capital available for investment by deferring the tax on the income earned in the account.
Contributions to your RRSP are deductible from your income tax return. This reduces your taxable income and, thus, your tax liability. However, there are a few treatments that you need to be aware of. Any investment income earned in the RRSP is tax-exempt while the funds remain in the plan. Once an individual withdraws funds from their RRSP, they will pay tax at their marginal tax rate. This allows for tax deferral, usually until a person retires, and the ability to make contributions and get deductions to take advantage of varying marginal tax rates depending on your stage in life.
The 2022 RRSP contribution limit is $29,210. If you did not utilize your full RRSP contribution limit from prior years, you can carry forward the unutilized amount to 2022. Therefore your RRSP contribution limit for 2022 may be higher than the maximum of $29,210. Feel free to contact the SRJ Professional Chartered Accountant team to help determine your 2022 RRSP deduction limit and how much contribution makes sense for you. Our accountants in Toronto can help keep your tax matters in order, so you don’t have to worry.
RRSP is a great tool for allowing people to build up savings for retirement easily. Here are some notable benefits of having an RRSP:
One benefit of contributions made to your RRSP is that you can claim your contributions as a deduction from your taxable income in the year. The higher your marginal tax bracket, the more tax savings you can gain. Assuming you are in a lower tax bracket, you can make contributions but delay the tax deductions to future years when your income is in a higher bracket. In Ontario, this may result in approximate tax savings of up to 53% of any contributions made to your RRSP.
Once funds are in your RRSP account and used to earn investment income, you do not pay any tax on your investment earnings as long as they are kept in your RRSP account. This means that your savings will be compounded tax-free, allowing your money to grow faster since more is available for reinvestment.
You can transfer your RRSP savings tax-free into an annuity or a registered retirement income fund (RRIF) once you retire. This allows for easy access to your savings through predictable annual payments while potentially paying lower taxes on that income, assuming you are in a lower tax bracket at the time of retirement.
It’s possible to further accumulate tax-free savings by having a spousal RRSP set up. This would allow you to contribute to your spouse’s RRSP. Assuming you are in a higher marginal tax rate than your spouse, this can be a smart strategy to get your contribution deducted at a higher rate, and when your spouse eventually withdraws the income, to be taxed at a lower marginal rate. Many CPAs know how to help you achieve this reduction and if you’re thinking about doing it yourself, make sure to read up on the conditions! It is always a good idea to consult a tax advisor as they can help reduce your tax liability.
Using the Home Buyer’s Plan (HBP), you can generally withdraw up to $35,000 out of your RRSP as a downpayment for a qualifying home purchase, your first home. Any amounts withdrawn would have to be repaid into the account over a 15-year period. This program allows taxpayers to use their RRSP accounts and their related benefits to save up for their first home faster.
A similar program is available under the Lifelong Learning Plan (LLP) to allow taxpayers to withdraw funds from their RRSP for eligible post-secondary education programs. The (LLP) allows you to withdraw up to $10,000 in a calendar year from your (RRSPs) to finance full-time training or education for you, your spouse, or your common-law partner. Many accountants in Toronto can do this for you.
Tax season is always a stressful time of year. No one likes spending hours sitting at the computer, struggling to fill out those tax forms and ensuring they’re including every possible deduction (and not forgetting any important documents)! If you find the tax season daunting, it might be time to consider hiring accountants.
The first reason you should consider hiring a CPA is that they can help you ensure that you’re taking all of the deductions you can. CPAs have a lot of experience with tax regulations and know exactly which are available to you, ensuring you aren’t missing out on any savings.
Another great reason to hire a CPA is that they’ll be able to help you if there’s ever an audit. Having a professional on your side can be great for peace of mind, knowing that you have someone who works with the CRA always helping you out if there are any problems. Plus, CPAs know precisely what they’re doing and are very familiar with Canadian tax laws.
Finally, hiring a CPA can also help keep fees low and ensure everything is filed correctly. A CPA can help you with any forms you need to complete, sorting your taxes and ensuring that everything is correct. This will, in turn, help you avoid paying excess fees or being audited because of an incorrect form! As you can see, CPAs can make tax season so much easier and stress-free.
Overall, having an RRSP can lead to a net benefit for many individuals and can be well worth setting up. However, since not everyone can gain the full benefits of an RRSP, it’s a good idea to first talk to a professional such as your accountant or any other individuals experienced with RRSPs before deciding to set one up and begin contributions. In some circumstances, an RRSP may not make sense for you based on estimations of future earning potential.
For more questions regarding the Registered Retirement Savings Plan and setting one up, you can talk to us at contact us at info@srjca.com or 647-725-2537. SRJ Chartered Professional Accountants Professional Corporation is a company of CPAs that specializes in helping individuals with tax planning and reducing taxes.
The RRSP contribution deadline for the 2022 tax year is March 1, 2023. Therefore, your 2022 RRSP contributions must be made before the RRSP contribution deadline to be eligible for a deduction on your 2022 taxes (due April 2023).
If you miss an RRSP deadline, you will lose out on a tax break and possibly lose out on some of your money growing tax-free during the time you missed. However, there are options in case you do miss a deadline, don’t hesitate to get in touch with the team at SRJ Professional Chartered Accountants in Toronto to determine the best scenario for yourself.
No, you have approximately 60 days after December 31 to make your RRSP contributions for 2022.
A registered retirement savings plan, or RRSP, is a tax-deferred plan intended for retirement savings. RRSP contributions are tax-deductible, which means they can be used to reduce your taxable income and may even result in a tax refund. The money in your RRSP can grow and earn compound interest on a tax-free basis.
When you withdraw money from your RRSP (ideally in retirement), the withdrawal amount is considered taxable income. However, some exceptions to this rule, like the Home Buyers’ Plan and Lifelong Learning plan, may allow you to borrow money from your RRSP interest-free for specific purposes — without being taxed.
While the tax year for 2022 income and tax deductions lines up with the calendar year (January 1 to December 31), the tax year for purposes of an RRSP contribution follows a different schedule:
This lopsided schedule is also sometimes called the “first 60 days rule,” meaning that any RRSP contributions made in the first 60 days of the year must be claimed on the tax return for the previous year.
You will receive two separate receipts for your RRSP contributions: one for contributions made between March 2 and December 31, 2022, and another for contributions between January 1 and March 1, 2023. You must claim both amounts on your 2022 income tax return. So if you make an RRSP contribution in the first 60 days of 2023, wait to file your taxes until you receive the second tax slip.
Even though you have to record RRSP contributions made during the first 60 days of 2023 on your 2022 taxes, you don’t have to apply them as a tax deduction. Instead, you can elect to carry the amount forward to your 2023 tax return — or another future year.
In fact, this “carry forward” option applies to all RRSP contributions regardless of when they’re made. You must declare these contributions on your taxes in the year you make them, but you don’t have to use them as deductions for that year. They will appear as “unused RRSP contributions” on your notice of assessment, and you can apply that amount as a tax deduction in any future tax year.
You might consider carrying forward unused contributions if you anticipate being in a higher tax bracket in the future and are interested in lowering your taxable income.
Before deciding whether to make a one-time or additional contribution before the RRSP deadline, check your notice of assessment or your CRA My Account to see whether you have any remaining contribution room for 2022. Exceeding your RRSP limit may result in tax penalties.
Generally speaking, the higher the tax bracket you’re in, the more sense it makes to put money into an RRSP. The conventional wisdom behind RRSPs is that you’re in a higher tax bracket during your working years than you will be in retirement. Contributing to an RRSP while you’re in a higher tax bracket allows you to take advantage of the deductions that reduce your taxable income. When you withdraw money from your RRSP in retirement, when it’s assumed you’ll be in a lower tax bracket, the funds will be taxed at a lower rate.
However, not everyone falls into a high tax bracket during their working years. If you’re in a lower tax bracket, the benefit of deducting your RRSP contributions could be minimal. Plus, your taxable RRSP withdrawals in retirement could take you above the qualifying thresholds for income-tested government retirement benefits like the guaranteed income supplement (GIS) and old age security (OAS), meaning you would need to repay those benefits.
In scenarios like this, contributing to a tax-free savings account, or TFSA, might make more sense. Although you won’t get a tax deduction for TFSA contributions, you won’t pay taxes on any growth or withdrawals — which means they won’t affect your government retirement income benefits.
And here’s where the major advantage of the “first 60 days” rule comes into play. With the calendar year behind you, you know what your total taxable income is for 2022. You can use that information to investigate your tax bracket and decide whether an additional RRSP contribution would be beneficial. Some people even use tax software to test different contribution amounts as they make their decision.
Some experts recommend waiting until the calendar year is over so you know your total income and tax burden and can use that information to decide how much money to contribute to your RRSP. Taking advantage of the “first 60 days” rule might be a good choice for people with less predictable income, such as those who are self-employed.
But if your income is predictable, and you receive a regular paycheque from an employer, consider saving yourself the hassle of scrambling to meet the RRSP deadline. Instead, set up automatic RRSP contributions throughout the year. This strategy is easier for budgeting, helps you take advantage of investment strategies like dollar cost averaging, and may even help you qualify for an employer match for your contributions.
