The Money Management Newsletter: RSP Planning
Reduce taxes at source
Big annual tax refunds are a curse, not a blessing

By Martin Kosterman
Money Management Newsletter

While many Canadians receive a chunky refund each year, in most cases, that just means they've been paying too much tax all year long.

After all, it makes more sense to have $100 extra each month in your pocket, rather than a refund check of $1200 when your taxes are processed the following June. Why give the government an interest-free loan?
Many Canadians have taken advantage of Canada Customs and Revenue Agency (CCRA, formerly Revenue Canada) regulations that allow them to reduce the amount of tax deducted from each paycheque. As a general rule, if you show the federal government proof of regular RRSP contributions or credits, they will permit the tax reduction at source.

The most common deduction is a regular contribution to an RRSP but it can also apply for tax-deductible alimony, childcare expenses or a number of other deductions or credits.

The request form must be completed each year, and approved by your local taxation office. If approved, CCRA will send a letter to your employer, approving the tax reduction on your payroll.

For investors in a group RRSP, the employer's payroll department will handle the RRSP contribution and tax reductions. If you don't contribute through payroll deductions, they need to make a request through their nearest taxation office.

It's never too early or too late to start your RSP

It's always a good idea to think about making your RSP contribution now to avoid the last-minute rush each January and February. What's more, your savings start working faster. Imagine, if you invested 12 months in advance, what a full years worth of investment income/gains added to your retirement plan would mean. For example, $5,000 contributed at the beginning of each year for 20 years, and earning 8% would grow into $247,115. Using the same criteria but contributing at the end of the year would only yield $228,810.

As part of your RSP planning, why not consider making year round instead of lump-sum contributions. A Fiscal Agents Advisor can show you how $50 per month can add to the bottom line at retirement. It's another part of Fiscal Agents Cornerstone Planning.

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