Feb. 7, 2025 "TFSA a more effective tax tool when RRSP becomes a burden": Today I found this article by Dale Jackson on BNN Bloomberg:
Better yet, doing both could create a powerhouse tax strategy to trim tax bills by thousands of dollars in retirement.
Potential tax savings depend on the individual taxpayer, so it’s probably best to discuss the right balance with a qualified professional.
Here are the RRSP/TFSA basics to get you started:
RRSP: Save now, pay later
Canadians love to get their RRSP tax refunds in the spring but the savings are smaller for those with lower incomes.
RRSPs deliver the biggest tax advantage for wealthy Canadians
because contributions can be deducted at the highest marginal tax rates.
That means someone with an annual income over $250,000, who is taxed at a combined Federal/provincial marginal rate of 50 per cent,
will lower their tax bill by half of their contribution.
At the low end of the income scale someone who makes less than $55,000 and is taxed at a rate of 15 per cent,
will only lower their tax bill by 15 per cent.
In dollar terms,
tax savings on a $10,000 RRSP contribution from someone in the top income bracket will be $5,000
compared with $1,500 for someone in the lowest.
RRSP investments can grow tax-free until they are withdrawn,
ideally at a lower marginal rate in retirement.
That’s why it’s important to target contributions toward high-income years when tax savings are high
and take a pass on contributing when income is low.
RRSPs can bite back for the rich, however.
If the investments inside grow too much they will eventually be forced to make minimum withdrawals at a higher tax rate
and even risk Old Age Security (OAS) clawbacks.
TFSA: Pay now, save later
You won’t have that problem with a TFSA because contributions are not tax exempt in the first place.
You can’t deduct contributions from taxable income,
but any gains made on the investments inside a TFSA (aside from dividends on foreign equities) are not taxed - ever.
Withdrawals can be made at any time with no tax consequences.
In most cases, diverting RRSP contributions or refunds to a TFSA makes more sense for Canadians taxed at a lower marginal rate.
The RRSP contribution limit for 2025 is 18 per cent of reported earned income in 2024 to a maximum of $32,490
and unused contribution space can be carried forward to future years.
But maxing them out early in life could be a huge mistake.
The TFSA was originally intended as a short-term savings tool when it was introduced in 2008, and contribution limits were low.
In 2025, the TFSA contribution limit for those who were 18 years or older when the TFSA was launched in 2009 has grown to $102,000, but it can vary among individuals depending on withdrawals made over the years.
Total allowable space is expected to grow in future years, making the TFSA a potential retirement saving dynamo.
RRSP & TFSA: The best of both worlds
Investors can avoid the risk of their RRSP savings growing to higher withdrawal rates and OAS clawbacks
by strategically shifting contributions to their TFSAs well before retirement.
Banking up a significant amount of cash in a TFSA allows retirees to top up needed cash without tax consequences,
while keeping RRSP withdrawals in the lowest tax bracket.
Just about any investment is permitted in both the RRSP and TFSA -
stocks,
bonds,
mutual funds,
exchange traded funds
- which presents an opportunity to use both as a single investment portfolio.
Consolidating retirement investments helps temper overall risk
by diversifying across
sector
and geographic lines,
and splitting assets between equities
and fixed income.
Feb. 10, 2025 "Tax credits that will help save you money in 2025": Today I found this article by Christopher Liew on BNN Bloomberg:
How much money did you save on your taxes last year?
If you typically file with a tax-filing software
or rely on a tax preparer,
there’s a chance that your savings could be limited by the program
or your tax preparer’s knowledge,
causing you to miss out on money-saving tax credits and benefits.
Even if you have an outstanding tax preparer or use the most expensive tax-filing software, it’s still a good idea to know some of the basics about the credits you’re receiving.
Below, I’ll share some of the CRA’s best tax credits so you can save even more this tax season.
Refundable vs. non-refundable credits
Before diving into the list, I wanted to briefly clarify the difference between refundable and non-refundable tax credits.
Refundable tax credits are those that have the potential to pay you,
assuming you bring your tax liability low enough.
Non-refundable credits, on the other hand,
cannot pay you back and these credits can only be used to reduce your tax liability.
For example, let’s say you owe $3,000 in taxes
and receive $5,000 in refundable credits.
This would result in you receiving a $2,000 check or direct deposit from the CRA.
Conversely, if you owe $3,000 in taxes
and receive up to $5,000 in non-refundable credits,
you wouldn’t receive a check
-- your tax liability (the amount you owe)
would just be reduced to $0.
Federal tax credits that can save you money this tax season
Below, I’m going to primarily focus on federal credits offered by the CRA.
These are available to eligible taxpayers throughout the country.
Some save you money
(or pay you)
in the form of annual credits that are applied during the tax-filing process,
while others are benefits which are paid on a monthly or quarterly basis.
In addition to federal-level credits and benefits,
each province and territory has its own unique tax credits that can be used to save you even more.
The CRA’s website has an extensive list of province/territory-specific credits and programs.
1. Canada training credit
The Canada training credit is a refundable credit available to individuals between 26 and 66 years old who have been paying for tuition and education expenses to further their careers.
This is a great way to get some money back for the money you spent on textbooks, classes, and more.
2. Canada caregiver credit
If you have a spouse, common-law partner, or dependent with a mental/physical disability who lives with you and for whom you provide primary care for, then you may be eligible for the Canada caregiver credit.
This non-refundable credit can help you save up to $8,375 or more on your tax liability,
depending on the age and relation you have to the dependent.
This credit is designed to help reimburse money spent on life necessities for a disabled family member or dependent, such as:
- Food
- Clothing
- Shelter
3. Home accessibility tax credit
Have you made recent home improvements to make your home more accessible to accommodate the disability or age of yourself, partner, or a dependent?
If so, then you may be able to claim up to $20,000 to help reimburse expenses.
The qualifying individual must be over age 65
or must have qualified for the disability tax credit at some point in the tax year.
There are also some rules regarding what type of expenses can be covered and how said work must be documented and inspected, which you can view on the CRA’s official page.
4. Canada child benefit
If you’re a new parent, then you should definitely make sure that you’re receiving the Canada child benefit. This is a monthly benefit paid to families who care for children under 18, and is primarily designed for low-to-moderate-income families to help offset the costs of raising and providing for their children.
5. Canada workers’ benefit
If you were at least 19 years old on Dec. 31,
were a legal resident for the year,
and earned below the net income threshold for your territory or province,
then you may be eligible to receive the Canada workers’ benefit.
The maximum basic amount
individuals can receive is up to $1,590
and $2,739 for families.
There is also a disability supplement for CWB beneficiaries who also suffer from a mental or physical disability.
If eligible, you can expect to receive automatic payments on the following dates:
- July 11, 2025
- October 10, 2025
Don’t forget to file on time
I recommend that individuals get an early start on their taxes so that they don’t have to rush.
Trying to rush through taxes often results in missing money-saving benefits and credits like the ones I mentioned above.
While some tax credits may be automatically applied based on your tax return,
others must be claimed and filed for individually.
The deadline to file your taxes for 2024 is Wednesday, April 30, 2025.
To avoid paying late fees and monthly penalties, it’s important to file your taxes before this date.
Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.
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