Low Tax Bracket InvestorLow Tax Bracket Investor

JimmyJimmy

• New graduate – age 22

N t th kf j i l i hi f t d• New to the workforce – junior role in his area of study

• Low tax bracket – expects employment income to grow over time and will withdraw money when in a higherover time and will withdraw money when in a higher tax bracket

• Expenses are low leaving assets to invest• Expenses are low leaving assets to invest

Low Tax Bracket Investor - Value in TFSALow Tax Bracket Investor Value in TFSA

Low to High*RRSP TFSA

Pre-tax income** $5,000 $5,000

Tax @ 20% - $1,000

Net contribution $5,000 $4,000

Growth 6% over 20 $16 036 $12 829Growth – 6% over 20 years

$16,036 $12,829

Tax on withdrawal - @ 45%

$7,216 -45%

Net cash $8,820 $12,829

*t b k t t ti f t ib ti d ithd l*tax bracket at time of contribution and withdrawal

**employment income available to invest

High Tax Bracket InvestorHigh Tax Bracket Investor

Alex

• Business owner - maximizes RRSP each year

• High income – top tax bracket• High income – top tax bracket

• Values tax deduction offered by RRSP

E b i b k f i• Expects to be in top tax bracket for some time – at least until retirement

Expects to withdraw money when in a lower tax• Expects to withdraw money when in a lower tax bracket

High Tax Bracket Investor - Value in RRSPHigh Tax Bracket Investor Value in RRSP

High to Low*RRSP TFSA

Pre-tax income** $5,000 $5,000

Tax @ 45% - $2,250

Net contribution $5,000 $2,750

G h 6% 20 $ 6 036 $8 820Growth – 6% over 20 years

$16,036 $8,820

Tax on withdrawal - @ $3,207 -20%

Net cash $12,829 $8,820

*tax bracket at time of contribution and withdrawal

**business income available to invest

High Tax Bracket Investor - Value in RRSPHigh Tax Bracket Investor Value in RRSP

• BUT• BUT,

• Alex can use TFSA as additional tax shelter once RRSP i i i dRRSP is maximized

• Tax refund received each year (from RRSP deduction) can grow tax-free in TFSA

• TFSA to be used to complement RRSP – Not• TFSA to be used to complement RRSP Not compete with it