Thursday, May 17, 2012

Reality of the situation

Now that tax time is mostly over (Except for those self-employed people like myself.  You still have until June 15th to file.  But strangely enough you have to pay "the man" by the now past deadline of April 30th...  So how do you know how much you owe before you do your return?  Good question.) and the RRSP contribution deadline has LONG since passed, it's time to enjoy the fresh spring weather, sit on a patio and enjoy the benefits of your fruitless labours.  Or for those of you who are doing better than me, the fruits of your labours.

Perhaps this post is ill-timed.  I'm either way late about it, or far too early.  Take your pick.  Now once again I might have said some of this stuff before but you people are being brainwashed by the propaganda that's in the main-stream media as "most" Canadians are good worker bees.  They lead their 44 hour weeks a day at a time with the underwhelming 10 days off (that I never get) and a huge chunk of their pay-cheques automatically withheld on their behalf.

What happens to them when they make an RRSP contribution?  It lowers their taxable income and deferring taxation on the contributed monies.  Thus helping them reclaim some of their hard-earned dollars in the form of a tax refund.

However, if you're a starving artist like myself, you probably don't owe any income taxes.  So your RRSP contribution will get you a BIG FAT ZERO of tax benefit.  In fact, if you manage your RRSP well, when you do take it out you WILL be taxed on it and probably at a much higher rate of taxation than your current ZERO.

Thus you have NO BUSINESS WHATSOEVER contributing to an RRSP unless you're doing well enough to be beyond the first tax bracket.  (Even still it won't be all that helpful... wait until you're in the 3rd)

I'm not kidding you folks.  Your RRSPs will give you almost NO advantage whatsoever vs. a taxable account.  Having said that, load you your TFSA account to the max first before contributing anything to a taxable account.  Doing your investing in a TFSA will relieve the burden of having to report your trading activities to the CRA.

Here are the other kickers for using your TFSA rather than an RRSP...  Once you retire your taxable income will be essentially the same as it is now... which will probably keep you out of any tax bracket.  Thus you will qualify for all the poverty-stricken government benefits that may or may not exist in the future when you decide (or your body decides for you) that it is time to hang it up.  (Whatever it may be)

Currently there is CPP (Canada Pension Plan, which pays you a taxable pension), OAS (Old Age Security which is a non taxable benefit) and GIS (Guaranteed Income Supplement).  The latter two do get clawed back at various TAXABLE income levels.  But if all your dividends/distributions/interest are coming at you from your TFSA, your only taxable incomes will be CPP and your private pensions like the Musicians' Union Pension plan, or ACTRAs pension plan if applicable.  The rest of your money in your TFSA, no matter how much it generates will NOT count as taxable income and not jeopardize the government monies given to low income seniors.

If you had contributed to an RRSP, your income from it would be taxable and would quickly bump you out of the income level to receive GIS and OAS.

So... stay hungry my friends.


  1. I'm in the 3rd tax bracket so I made a small contribution to my RRSPs this year. Enough to diversify my future tax risks, but not so much to bring me down to the 2nd tax bracket. I prefer TFSA as well. I wish Flaherty would raise the $5K limit on that already.

    1. You're in a high enough bracket my friend! Anything refunds "re-claimed" would be good set to work either on your mortgage or in your margin account.

      Through clever "tax strategies" you will be able to qualify for the previously mentioned income supplements... Not year after year of course. Any time you sold off something (unless you have some tax-loss selling to counter it) you'll have to pay the man.