Early Contribution to RRSP
It's a great idea to contribute to an
RRSP each year, especially if you are young and a long way
from retirement. It is advisable to contribute early in the
year so you start the tax-free compounding of earnings within
the RRSP earlier. Also consider monthly payments into an RRSP
throughout the year.
Once made, contributions within your deduction
limit, or to an excess of $2,000, can be carried forward indefinitely,
without penalty, for deduction in future years. This could
be a substantial advantage if you claim the deductions in
years when you will be in a higher tax bracket.
For your RRSP contribution to be deductible
for a particular tax year, the deadline is the 60th day of
the following year. For the 2004 tax year, the deadline is
March 1, 2005.
The Institute of Chartered Accountants
of Alberta provides information for RRSP Tips as a public
service.
Old Age Security Clawback
If your net income exceeds $57,879, all or a portion of
your Old Age Security (OAS) will be repaid or clawed back.
The clawback is $0.15 for each dollar of income in excess
of $57,879 and when net income reaches approximately $94,500,
all of your OAS will be clawed back.
If last year's net income exceeded $57,879, this year's OAS
payment will be reduced by an estimated clawback based on
last year's income.
This clawback is based on your income, not on family income.
Thus, splitting income with other family members may reduce
the risk of OAS clawback. Most income splitting procedures
require proper planning over several years to be effective.
One income splitting method is to split your Canada Pension
Plan benefits with your spouse. Call your Chartered Accountant
to find out more.
The Institute of Chartered Accountants of Alberta provides
information for Tax Tips as a public service.
Managing Your Retirement
The government requires that Old Age Security (OAS) be repaid
equal to 15% of net income in excess of $57,879. Basically,
if a person received the maximum OAS of approximately $5,500,
all of it must be repaid if their net income is equal to or
greater than approximately $94,500.
If your income is sufficient to force repayment of OAS each
year, you should talk to your Chartered Accountant about restructuring
your income. He or she may suggest setting up an investment
holding company for you. The company would report some of
the income you otherwise report on your personal tax return.
If done correctly, your personal income may be lowered enough
for you to retain 100% of your OAS. At $5,500 per year, the
benefits can quickly add up. There are other benefits and
costs to consider. So, don't try this on your own.
The Institute of Chartered Accountants of Alberta provides
information for Tax Tips as a public service.
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