With 2015 in the rearview mirror, it’s time to review your savings strategies to make sure that you’re leveraging all of the savings opportunities available to you.
Geoff Gravett, CPA, CA, LPA from Millards Chartered Professional Accountants says that now is the time to assess your RRSP plans and seek advice before the upcoming deadline.
“You have until Monday, February 29, 2016 to make tax deductible Registered Retirement Savings Plan contributions for the 2015 year.”
Gravett recommends that couples can maximize their savings by taking advantage of a Spousal or common-law partner RRSP.
“A Spousal RRSP offers a number of advantages and is particularly helpful if there is a significant difference in income between spouses. Spousal RRSPs are one of the best income splitting opportunities available to Canadians.”
What is income splitting?
Income-splitting is a way to lower a family’s overall tax debt by transferring the income from a higher-income earner to a lower income earner. The advantage of income splitting is that the same amount of income is taxed at a lower rate. Contributions made to a spousal or common-law partner RRSP reduce your RRSP deduction limit.
Gravett notes that there are some caveats to keep in mind.
“The total amount you can deduct for contributions you make to your RRSP or your spouse’s or common-law partner’s RRSP cannot be more than your RRSP deduction limit. Also, the age limit for maturing Registered Pension Plans, RRSP, and Deferred Profit Sharing Plans is 71 years of age.
If you cannot contribute to your RRSP because of your age, you can still contribute to your spouse’s or common-law partner’s RRSP until the end of the year he or she turns 71.
So should you contribute to a spousal or common-law partner RRSP?
“By equalizing each spouse’s retirement income, the overall tax bill is lowered by keeping both spouses in a lower tax bracket. This is one of the few income-splitting options still available to Canadians. We encourage our clients to consider it because it can minimize a household’s overall tax burden in retirement.”
Contact your Millards Professional Chartered Accountants presentative today for more information about the Spousal or common-law partner RRSP.
Geoff Gravett, CPA, CA, LPA, joined Millards Chartered Professional Accountants in 2000. His practice areas include taxation and management advisory services, business purchases and sales as well as a special interest in health care professionals and dental practices.
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