B8 G THE GLOBE AND MAIL | THURSDAY, FEBRUARY 28, 2019RRSP - DECISION TIME

Tick tock. Have you madeyour registered retirementsavings plan (RRSP) contri-

butions for 2018 yet? March 1marks the last day the CanadaRevenue Agency (CRA) allowsCanadians to sock away moneyin an RRSP to take advantage oftax deductions today and tax-sheltered growth for tomorrow.The bad news? If you’ve wait-

ed until now, you’re likely scram-bling to make that contribution.The good news? There’s actuallystill time to contribute without alot of drama, even if you wait un-til the evening of March 1 tomove your money. What’s more,simply by making an RRSP con-tribution – even of the last-min-ute variety – puts you ahead ofthe 35 per cent of Canadians whomiss the deadline entirely anddon’t save at all, according tocensus data.“It’s pretty scary how many

people are expecting their Cana-da Pension Plan (CPP) and OldAge Security (OAS) to make uptheir retirement income. Theyshould be supplementing yourincome in retirement, not theother way around,” says PaulShelestowsky, a senior wealthadvisor for Meridian CreditUnion’s branch in Niagara-on-the-Lake, Ont.Here are six tips to help you

contribute to your RRSP, andavoid the RRSP scramble nextyear, too.

1. KNOW YOUR NUMBERS

First things first. It’s important toknow how much the CRA allowsyou to contribute. This year not

much has changed. Any Cana-dian under 71 can contribute asmuch as 18 per cent of the prioryear’s income, to a maximum of$26,230. What’s more, any un-used RRSP contribution roomfrom previous years is carriedforward and can be used, too.That way, if you suddenly comeinto a nice inheritance or unex-pected work bonus, you can con-tribute more than this year’smaximum without incurring apenalty.Not sure how much unused

room you have? Take a look atyour most recent notice of as-sessment. The number is easy tospot. Or visit the CRA’s My Ac-count website. You’ll find that in-formation there.“Every situation is going to be

different,” says Shelley Smith, afinancial planner at TD Wealth inToronto. “You’re going to have totake a look and see, ‘okay, howmuch room do I have?’”

2. IS AN RRSP BEST?

Sure, there’s a lot written thesedays about whether the RRSPbeats the tax-free savings ac-count (TFSA) as the numero unoretirement- savings option. Soit’s no wonder some would-besavers find their stomachs inknots before making any kind ofinvestment decision at all, par-ticularly if they haven’t takensome time to educate them-selves about options.So, here’s a quick and dirty

way to choose what’s right foryou: Ask yourself how muchmoney you earn.For anyone making $40,000

or less a year, the TFSA is yourfriend. Not only can you minethe funds later without penalty,funds grow tax-free. RRSPs, how-ever, are a good bet for anyonemaking about $60,000 and up.They help defer taxes now and,hopefully, when the money isused later, you’ll be in a lowertax bracket so the funds can bewithdrawn at a lower rate.“For most people who are sav-

ing for retirement, if they’re in

the higher-income range, theRRSP is a pretty clear way to go,”says Noel D’Souza, a Torontomoney coach with MoneyCoaches Canada.

3. STOP PROCRASTINATING

Not only does waiting until thevery last minute mean you’ll loseout on tax-deferred growth andcompounding for those extra364 days, procrastination createsstress come deadline time, Mr.D’Souza says. Feeling too rushedcan cause some people to decidecontributing just isn’t worth thehassle.“I would also say a lot of peo-

ple feel more anxiety whenthey’re investing a big lump sum.They’re asking themselves, ‘Isthis the right time to put it intothe market?’” he says, explainingthat the most recent market vol-atility is causing heart rates tosoar already.

4. REGULAR IS BETTER

Instead of waiting until the verylast moment to contribute alarge lump sum on March 1, it’sbetter to create a plan and makemonthly contributions in 2019.“It’s predictable. It’s easier on

your cash flow,” Mr. Shelestow-sky says. “It’s a lot easier to comeup with $415 a month than it is$5,000 once a year, right?”Not only that, making consis-

tent payments means you’re tak-ing advantage of dollar cost av-eraging – you automatically buymore units when they cost less,and fewer when they cost more.Statistically, investors who investmonthly come out ahead com-pared to once-a-year investors.

5. IT’S OKAY TO PARK IT

Here’s something many inves-tors don’t know: Just becauseyou’re contributing to an RRSPaccount, that doesn’t mean youhave to invest that money rightaway. Many financial institutions

offer some kind of park-your-money option while you decidewhat to do with it. For instance,Meridian Credit Union offers aboost on an RRSP savings ac-count – for four months, inves-tors will earn 3.25-per-cent inter-est while they formalize their in-vesting plans.Mr. Shelestowsky admits he’s

been working a lot of 12-hourdays leading up to the RRSP cut-off, so that breathing roommakes some practical sense.“I want my clients to make a

contribution, but I want to makesure that we’re putting them inthe best investments for theirrisk and objectives,” he says.Still, Mr. D’Souza cautions

there’s a downside to this option.Some people could forget abouttheir cash and earn a low rate ofreturn for far too long.

6. THE LAST POSSIBLE MINUTE

Technically, you could contributeto your RRSP at 11:59 p.m. onMarch 1 and still make the dead-line. And that’s certainly an op-tion if you’re simply movingmoney online within a single fi-nancial institution. (You mayhave to click a button indicatingyou’ve already confirmed yourRRSP limit before you can in-vest.) But if you’re needing tomove money between institu-tions, make a call earlier in theday to ensure those funds willtransfer on time.Just don’t expect to roll into

your bank’s local branch at 11:45p.m. to set up that transaction.So much investing happens on-line now, the days of extendedhours for RRSP procrastinatorsare over.Mr. Shelestowsky remembers

the last time he burned the mid-night oil on RRSP night at onebranch a number of years ago. “Itwas a ghost town from eight un-til midnight,” he says. “Our regu-lar hours are more than enoughto capture everybody who wantsto come in that day.”

Special to The Globe and Mail

How to make RRSP contributions a year-round habit

Instead of waiting untilthe last moment tocontribute a lump sumon March 1, it’s better tocreate a plan and makemonthly payments

KIRA VERMOND

‘It’s a lot easier to come upwith $415 a month than itis $5,000 once a year,right?,’ says PaulShelestowsky, a seniorMeridian Credit Unionwealth advisor,commenting on thestrategy of makingmonthly RRSPcontributions.

Alex Ghani has alwayslooked to thedistant futurewhen it comes to his fam-

ily’s financial planning. Back in2009, at only 33 years of age, Mr.Ghani began contributing annualfunds to a spousal registered re-tirement savings plan (RRSP) es-tablished in the name of his wife,Sana.Sana Ghani currently works

outside the home, but she stayedout of the labour force for severalyears to raise the couple’s threesons – Nyal, nine, Aariz, six andMikhail, four.“The spousal RRSP enables

higher-income-earning spouseslike me to put retirement moneyaway for a lower-income spouse.The contribution Imake givesmea larger tax deduction inmyhigh-income years. Then, over thelong-termSanaand Iwill have theopportunity to incomesplitwhenwe’ve retired,” says Mr. Ghani, achartered professional account-ant and partner with CPA Solu-tions LLP in Thornhill, Ont.Even though theMarch 1 dead-

line for 2018-related contribu-tions to an RRSP will soon behere, experts stress that thesecontributions, including thespousal RRSP, are most effectiveas part of a multiyear, long-termstrategy, and Canadians shouldalways be thinking ahead to thenext taxation year – and beyond.“The spousal RRSP is ideally

suited for long-term planning,”says Alicea Robb, managing di-rector of tax and accounting forTMFD Ottawa Professional Cor-poration, an Ottawa-based CPAfirm.Canada has a progressive tax

system where tax rate bracketsrise at certain levels of increasedtaxable income.If at retirement, for example,

one spouse had $1-million inRRSP savings and the otherspouse had no savings, the familywould be taxed at a higher rate ifone spouse withdrew from his orher $1-million plan, compared toequal withdrawals made by eachpartner with $500,000 in their re-spective RRSPs, Ms. Robb says.

Ideally, spousal RRSP planningshould start as early as possible,as soon as there is a disparity inincome between spouses or com-mon-law partners.“If a couple each makes the

same money, and they’re puttingabout the same amounts intotheir individual RRSP plans, thena spousal RRSP is not going to adda lot to their mix,” says JasonKingston, a principal with DSKLLP in Kitchener, Ont.“But as soon as you’re in the

situation where you’re talkingabout maybe one of the spousesstaying home, or one spouse hasa much higher earning potential,or current earnings, at that point Iwould open up a spousal ac-count, and try to keep the retire-ment assets available somewhatreasonably balanced between thetwo,” he says.TheRRSP contributor can elect

to split their annual contributionamount between their own RRSPand that of their spouse. The an-nual contribution limit for the2018 tax year, for example, was 18per cent of the previous year’searned income up to amaximumof $26,230 [the amount some-body earning roughly $145,722could contribute].“It all comes around to tax

planning and having a financialplandrawnup so youunderstandwhere those contributions are

best put, whether it’s in a spousalRRSP or whether it’s a combina-tion,” says Daniel Nolan, an in-vestment advisorwith IPC Securi-ties Corp. in Ottawa.Ms. Robb adds, “I don’t think

people realize that [with] thespousal RRSP, when you contrib-ute, you actually take the incomethrough your contribution room[to] put into your spouse’s RRSP.But then that money is no longeryours. It’s in their name. It growsfor them. When they take it out,they get taxedat their income-taxrate.”There is an important caveat,

however, which is meant to en-courage couples to use the spou-sal RRSP for their long-term taxbenefit.Canada’s Income Tax Act con-

tains an attribution rule, whichstates that if funds arewithdrawnfrom a spousal RRSP in the sameyear as the contribution wasmade, or in any of the next twofull taxation/calendar years,withdrawn fundsup to the contri-bution amount will be taxed inthe hands of the contributor, attheir presumably higher rate.“The major long-term benefit

is that a spousal RRSP is one ofthe last permittedways under thetax rules to shift investment sav-ings from a higher-incomespouse to a lower-income spouseto set a couple up for future in-

come splitting,with the ideal goalof equalizing incomes during re-tirement,” says Graeme Egan,head of CastleBay Wealth Man-agement Inc., a portfolio manag-er and fee-only financial planningcompany in Vancouver.Spousal RRSPs can also be ben-

eficial well past the normal retire-ment age.Individuals must stop contrib-

uting to an RRSP by Dec. 31 of theyear they turn 71, at which timethey essentially have two choices– to convert their RRSP to a regis-tered retirement income fund(RRIF) or to a fixed-income an-nuity. But some people continueworking past the age of 71, andthe spousal RRSPmight be an ex-cellent family strategy.“If you love your job and you

work past the age of 71, and youhave RRSP contribution space,and your spouse is under 71, youcan still contribute to your spou-sal RRSP and get that deduction,”Mr. Kingston says.Mr. Ghani notes that as an ac-

counting practitioner with hisown firm, he may well decide tocontinueworkingpast age 71. “Sa-na’s younger than I am, so it willgive me the opportunity if I haveearned income to continue con-tributing to her RRSP much laterin life,” he says.

Special to The Globe and Mail

Don’t overlook the benefits of the spousal RRSPAs soon as there isa disparity in incomebetween partners,a spousal RRSP shouldbe put into play

JEFF BUCKSTEIN

Sana and Alex Ghani set upa spousal registeredretirement savings planwhen Sana stayed out ofthe labour force in Ontariofor several years to raisethe couple’s three sons.But the strategy hasbenefits well beyond thechild-rearing years.MOE DOIRON/THE GLOBE AND MAIL

Product: TGAM PubDate: 02-28-2019 Zone: GTA Edition: 1 Page: ROB_2715779 User: BHorton Time: 02-27-2019 17:11 Color: CMYK

INCORPORATING A BUSINESSOFFERS BENEFITS TOBUSINESS OWNERS, includingtax deferral and income splitting.

But new measures from the2018 Federal Budget may changethis, and have an impact on abusiness owner’s ability to usea private corporation to accumu-late wealth, says Carol Bezaire,vice-president of tax, estate andstrategic philanthropy planning atMackenzie Investments.

“The planning idea has alwaysbeen that if you can save fundswithin your corporation, it’s aneffective way to build wealth andsave for retirement,” she says.

The advantage up to now wasthat earnings for small businesseswere taxed at low corporate rates— in Ontario the small businessrate is 12.5 per cent.

But starting with income earnedsince Jan. 1, 2019, the Canada Rev-enue Agency (CRA) will reduce thesmall business limit that attractsthe low rate as soon as a business’passive investment incomeexceeds $50,000. Passive incomeis what is earned in the businessfrom investments, not from activebusiness activities.

The reduction cuts the smallbusiness limit by $5 for every dol-lar of this passive income above$50,000. The effect is that thesmall business rate won’t applyto businesses that earn more than$150,000 in passive income.

Fortunately, owners of incorpo-rated business have other optionsfor minimizing taxes, Ms. Bezairesays. They can invest in RegisteredRetirement Savings Plans (RRSPs),and use other tax-efficient vehiclessuch as Individual Pension Plans(IPP) and Retirement Compensa-tion Arrangements (RCA) whensaving for retirement.

“The latter are two differentvehicles that will use before-taxbusiness income and attract adeduction to the company, whilecreating retirement funds for the

business owner and key employ-ees.” Ms. Bezaire says.

An IPP is a defined benefitregistered pension plan similarto pensions used by teachers,municipal employees and corpo-rate employees. The difference isthat the IPP is only for the privatecorporation’s owner, spouse andadult children.

IPPs are subject to the same con-tribution limits as defined benefitregistered pension plans, with theadvantage being that participantscan maximize the contributions byboth the business employer andthe employees as allowed by theCRA. Both contributions are taxdeductible and are usually higherthan the limits for an RRSP. An IPPis typically set up with the help of

Small business owners have several options for minimizing taxes including investing in RRSPs, IPPS and RCAs,says Carol Bezaire of Mackenzie Investments.

an actuary and trustee. The set-upcosts are paid by the company anddeducted before tax.

“It saves the company incometax and the funds in the IPP arenot taxable to the business owneruntil withdrawn when he or sheretires,” Ms. Bezaire says.

IPPs offer several advantages.They can reduce the tax burdenimposed by the new rules for pas-sive investments and they allowlarger tax deductible contributionsthan RRSPs do, as well as up to 65per cent greater retirement bene-fits than RRSPs.

IPPs are also creditor-protect-ed under Pension legislation, soprotected in case the business runsinto trouble. As a pension plan,the IPP also provides the opportu-

SPONSOR CONTENT ADVERTISING PRODUCED BY THE GLOBE CONTENT STUDIO. THE GLOBE’S EDITORIAL DEPARTMENT WAS NOT INVOLVED.

NEW TAX RULES MEAN IT’SIMPORTANT TO SEEK GOOD ADVICEFOR PRIVATE CORPORATIONSBusiness owners have options for accumulating wealth in tax-efficient ways

nity for pension income splittingbetween spouses. IPPs also offera one-time opportunity for a largecontribution for past service tothe business, which can bring taxadvantages.

But there are also disadvantag-es to IPPs to consider, Ms. Bezairewarns. They are more complex toset up and administer than RRSPs,and even though the fees are taxdeductible, they can be a costlyexpense for the business on anongoing basis.

With a few exceptions, the assetsin an IPP are locked in; in addition,the contributions can’t be adjustedup or down and they don’t allowroom for spousal contributions theway RRSPs do. For some people,spousal RRSPs may be more attrac-

tive for income splitting.An IPP is well suited for a

business owner of an incorporatedcompany or an incorporated pro-fessional or executive who is over40 years old, and has earned in-come of more than $100,000. It’snot well suited for sole proprietorsor business partners, or people inhighly cyclical businesses or thosewho rely on dividends or incomethat is not listed on T4 slips.

A Retirement CompensationArrangement (RCAs) is anothertax-efficient vehicles that cancoexist with IPPs.

“Sometimes an IPP doesn’tprovide enough retirement incometo the business owner, so an RCAcan sit on top for extra funding.It’s sometimes even called a ‘tophat’,” Ms. Bezaire says.

“Basically, it’s a trust. When themoney comes in, one half goes tothe CRA on a refundable basis, andthe other half gets invested,” sheexplains.

The advantage to an RCA is thatit’s a much shorter commitmentby the company toward retirementthan an IPP, Ms. Bezaire adds.

The complexity of these wealthaccumulation vehicles points to theimportance of engaging a trustedfinancial advisor, she also says.

“Many business owners spendso much time on their businessesthat they don’t have time to knowall about the rules the way anadvisor does,” she says.

The content of this article, includingfacts, views, opinions, recommenda-tions, descriptions of or references to,products or securities, is not to be usedor construed as investment advice, as anoffer to sell or the solicitation of an offer tobuy, or an endorsement, recommendationor sponsorship of any entity or securitycited. Although Mackenzie Investmentsendeavours to ensure its accuracy andcompleteness, it assumes no responsibilityfor any reliance upon it. This should not beconstrued to be legal or tax advice, as eachclient’s situation is different. Please consultyour own legal and tax adviser.

Commissions, trailing commissions, management fees and expenses all may be associated with investment funds. Please read the prospectus before investing. Investment funds are notguaranteed, their values change frequently and past performance may not be repeated.

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