How much do you put into RRSP's?

[Slava]

Originally Posted by fotze

I have some stocks that are pretty low, can I roll them into a TFSA or do I have to sell and re-buy them in the TFSA?

You can put them in. Its a deemed disposition tax-wise, just FYI, but you can do that.

[MoneyGuy]

Rules around capital gains and losses and carrying forward and back.

http://www.taxtips.ca/filing/capitallosses.htm

[Slava]

Originally Posted by fotze

Important bit on there. Answers my question.

Also, losses on transfers of shares to an RRSP, TFSA, DPSP or RDSP are not deductible

Usually to claim a loss you have to sell and not hold the same security (or anything that is virtually the same) for 30 days otherwise that loss is considered superficial.

[bizaro86]

You have to sell and not re-buy for 30 days if you want to claim the loss on taxes.

This gives the stock that has been down for years a chance to shoot up during the month you don't own it.

[MoneyGuy]

You can work around the superficial loss rule by buying a different class of the same stock or fund. If it's a mutual fund, buy the class version instead of the trust version. It's harder with a stock. After 30 days you can sell and buy the one you wanted, but if you're trading funds watch out for the short-term trading penalty.

[GP_Matt]

Originally Posted by squiggs96

Whether it's 25% (which I said was just an example) or 43% it's a difference of $1,800 in the first year. Although there is no point arguing over $1,800, the vast majority of people are not taxed at 43%. I'd make a guess the vast majority of people have income closer to $40,000 than $130,000, and thus would be closer to a 25% tax rate.

Of course you can invest the refund in, but if you only contribute the amount and don't get your refund until next year, you might not put it in. You might put the refund into another investment entirely. For my example it was a straight $10,000 investment. I chose to keep the refund out, to keep it simple. The $4,300 you said to reinvest, would also create a refund, which could be reinvested as well. Instead, you might have reduced taxes taken off your pay stub, and thus the $4,300 refund wouldn't even be there. The taxes owing might equal the taxes paid.

Why would the rate when paying out $1M, or in your case $1.43M only be 25%? If you are having income of $1M, you'll be in the highest tax bracket, which I made an assumption would be 43%. I'm not talking about the amount withheld, or the amount from a RIF or any other measures. If you take the amount out in 10 years, it's taxable income and would be subject to the highest income tax rate.

What you've done is give a separate example, including reinvesting the refund. It does not make my example wrong. It's just one scenario. We both agree that blanket statements aren't appropriate when comparing the two. You have illustrated an alternate proposal that could be presented to the investor. Many of these situations should be looked at when investing. What works for one person, will not always work for everyone.

This all assumes that you have a single income stream and all standard deductions have been made at the source with no accounting for RRSP contributions along the way.
There are many other alternatives. Instead of making a lump sum contribution of $10000 to your RRSP at the end of the year and getting a tax refund check you can make $1200 a month contributions and have your employer withhold less tax at the source. At the end of the year you have contributed $14400 to your RRSP and receive no refund in your taxes. Instead of getting the cheque for 4400 at the end of the year you have paid $366 less in taxes every month. Alternatively you would have $834 a month to put in your TFSA or $10008 a year (assuming you have room).
Now, you have either 14400 shares in your RRSP or 10008 shares in your TFSA.

Assuming the stock goes to 100 you now have a million in TFSA or 1.44 million in the RRSP. Assuming you take the money out over several years (Let us assume 10 years and there is no further growth.)
From your TFSA it is easy, you take out $100000 a year and pay no taxes. From your RRSP you take out $144000 a year but have to pay taxes. However we live in a society that has marginal tax rates. That means that even though the money you put in was in your top tax bracket and you are still in the top tax bracket when you take the money out, only some of your future income is in the top tax bracket while the rest in in lower brackets. That means that you pay $38128 a year in taxes leaving you with $104872 a year in after tax cash. Roughly 5% more than you would have with the same scenario in your TFSA.

Of course, like most others, I am still not saying that the RRSP is better as there are further considerations like CPP tax rates and OAS clawbacks.

[Knalus]

Originally Posted by GP_Matt

This all assumes that you have a single income stream and all standard deductions have been made at the source with no accounting for RRSP contributions along the way.
There are many other alternatives. Instead of making a lump sum contribution of $10000 to your RRSP at the end of the year and getting a tax refund check you can make $1200 a month contributions and have your employer withhold less tax at the source. At the end of the year you have contributed $14400 to your RRSP and receive no refund in your taxes. Instead of getting the cheque for 4400 at the end of the year you have paid $366 less in taxes every month. Alternatively you would have $834 a month to put in your TFSA or $10008 a year (assuming you have room).
Now, you have either 14400 shares in your RRSP or 10008 shares in your TFSA.

Assuming the stock goes to 100 you now have a million in TFSA or 1.44 million in the RRSP. Assuming you take the money out over several years (Let us assume 10 years and there is no further growth.)
From your TFSA it is easy, you take out $100000 a year and pay no taxes. From your RRSP you take out $144000 a year but have to pay taxes. However we live in a society that has marginal tax rates. That means that even though the money you put in was in your top tax bracket and you are still in the top tax bracket when you take the money out, only some of your future income is in the top tax bracket while the rest in in lower brackets. That means that you pay $38128 a year in taxes leaving you with $104872 a year in after tax cash. Roughly 5% more than you would have with the same scenario in your TFSA.

Of course, like most others, I am still not saying that the RRSP is better as there are further considerations like CPP tax rates and OAS clawbacks.

This is all find and good, but in my industry, large end of the year bonuses are the norm, and many people plan their RRSP contributions around this large, once a year lump sum of uncertain size which just happens to occur prior to RRSP season. My pay structure is such that your method is actually harder to do than it would be for others.

[GP_Matt]

Originally Posted by Knalus

This is all find and good, but in my industry, large end of the year bonuses are the norm, and many people plan their RRSP contributions around this large, once a year lump sum of uncertain size which just happens to occur prior to RRSP season. My pay structure is such that your method is actually harder to do than it would be for others.

If you are getting your bonus in December then this is still doable but will take some prep work. If you fill everything out in advance of your bonus you can still get your company to withhold less tax so that you can contribute the full pre-tax amount to your RRSP and avoid a refund.

If your bonus comes in January or February there are more issues to deal with that I don't feel like considering at the moment.

All of the debate between RRSP and TFSA should assume that you will not be getting a refund or making a payment come tax time. If you are getting a refund you should try to eliminate this earlier in the year by paying less taxes. If you owe every year the government certainly ensures that you pay more taxes throughout the year to prevent it. If it is good for them the opposite should be good for you.

tl;dr refunds are bad and you should try to avoid them. You usually can without too much hassle.

[darklord700]

Originally Posted by fotze

Hmm. So it would be a loss.

how do you carry back a capital loss? Do you re-file taxes for that given year?

Losses as a result of deemed disposition from transfers into a registered account (RRSP or TFSA) is denied.

http://www.taxtips.ca/personaltax/in...arestorrsp.htm

[Knalus]

Originally Posted by GP_Matt

If you are getting your bonus in December then this is still doable but will take some prep work. If you fill everything out in advance of your bonus you can still get your company to withhold less tax so that you can contribute the full pre-tax amount to your RRSP and avoid a refund.

If your bonus comes in January or February there are more issues to deal with that I don't feel like considering at the moment.

All of the debate between RRSP and TFSA should assume that you will not be getting a refund or making a payment come tax time. If you are getting a refund you should try to eliminate this earlier in the year by paying less taxes. If you owe every year the government certainly ensures that you pay more taxes throughout the year to prevent it. If it is good for them the opposite should be good for you.

tl;dr refunds are bad and you should try to avoid them. You usually can without too much hassle.

Yup, February. And there is no guarantee as to how large, either. All have been over 5 figures, though, it is a significant amount of your yearly income.

[Jason14h]

You can work around the superficial loss rule by buying a different class of the same stock or fun

Can you also not sell to a spouse or family member, have them hold for 30 days, and sell back?

[BigNumbers]

You cannot sell to a spouse or family member as that is not at arms length. Selling and buying a different class of share is likely not kosher under GAAR. Not likely to get caught, but if you did something to avoid tax you are a target for GAAR.

[AR_Six]

Originally Posted by BigNumbers

You cannot sell to a spouse or family member as that is not at arms length. Selling and buying a different class of share is likely not kosher under GAAR. Not likely to get caught, but if you did something to avoid tax you are a target for GAAR.

This would be an interesting case. My initial thought was that this shouldn't be GAAR-able because it would amount to CRA pointing to an alternative purchase you would've made that would have resulted in tax, which is a non-starter for a court. However, upon further thought, there's clearly a tax benefit (the loss) and the sale was primarily motivated to realize the loss rather than to dispose of the security, so it does sound kinda like a win for the minister.