Canadians have more choices than ever to grow their investments in a tax-efficient manner through registered investment vehicles such as RRSP, RESP, RDSP, TFSA, and the more recent FHSA. Unfortunately, for most Canadians, maximizing all options is just not a realistic expectation.
In his recent article in the Financial Post, Jamie Golombek suggests an order of operations when reviewing where your next dollar should go. To the extent that it applies to your particular scenario, Jamie suggests you should first contribute to any plan that offers “free money” – that is the RDSP and RESP, up to the point where any such government grant is maximized. Then, if you are a first-time homebuyer, due to its flexible terms, he suggests the FHSA should take priority. Beyond that, investment goals and cash flow requirements in both the near and long term may affect the decision to contribute to either an RRSP or TFSA. In short, if you expect to have a lower marginal tax rate in retirement than you do now, it makes sense to contribute to your RRSP first before making a TFSA contribution. We provide a mathematical illustration of this concept in one of our previous commentaries that may help you decide where to contribute next. Both vehicles provide profound tax-free compounding and should be fully utilized to the extent possible.
We encourage you to read Jamie’s article for more details on the benefits of each type of account and how they might apply to your situation.
RRSP CONTRIBUTION LIMITS
As you contemplate the information above, it is important to know the allowable limits so that you can allocate available funds accordingly. For the 2023 tax year, the maximum RRSP contribution amount is the lower of 18% of your earned income during 2022 and $30,780. The deadline for making RRSP contributions for the 2023 tax year is February 29, 2024. QV will accommodate RRSP contribution requests until 12:00 PM MST on that day.
The maximum RRSP contribution for the 2024 tax year is $31,560.
You can carry forward unused RRSP room to future tax years.
TFSA CONTRIBUTION LIMIT
This year, the annual contribution limit has been increased to $7,000, up from $6,500 last year.
In addition to the 2024 TFSA contribution limit, any unused TFSA contribution room from previous years may be carried forward. If you have never made a TFSA contribution and have been eligible since its inception in 2009, your cumulative TFSA contribution room is $95,000.
Details on the rules surrounding the timing of withdrawals and re-contributions to your TFSA can be found here.
WHERE CAN I FIND MY CONTRIBUTION ROOM?
You can verify your available contribution room for both TFSA and RRSP accounts online using My Account with the CRA, or by calling the CRA at 1-800-267-6999. Please keep in mind that the CRA’s records are not updated in real-time. Any contributions made during 2023 might not be reflected in your reported contribution room. It’s important to carefully review your contribution history to avoid overcontributing.
HOW TO CONTRIBUTE
As a reminder, you can contribute to your TFSA and RRSP accounts by transferring funds from a non-registered account. Alternatively, we can pull funds from your bank account upon verification of banking information. Note that QV will not be held liable for charges resulting from insufficient funds. RBC Investor & Treasury Services no longer accepts cheques.
TAX REPORTING DEADLINES
Below we have outlined important dates and information to help guide you through the upcoming tax season.
Clients invested in the QV Pooled Funds should expect to see 2023 tax slips delivered according to the following schedule:
| RRSP Contributions made Mar 2 – Dec 31, 2023 Jan 31, 2024 | Jan 31, 2024 |
| RRSP Contributions made Jan 1 – Feb 29, 2024 | Mar 22, 2024 |
| T4/RL-2 (RIF/LIF/RSP/FHSA) | Feb 9, 2024 |
| T3/RL-16/NR4 | Feb 23, 2024 |
| T5008/RL-19 | Feb 23, 2024 |
Clients invested in segregated securities should expect to receive tax slips in early March 2024 from the custodian directly.
There is no silver bullet for optimizing tax efficiency and the path to getting there is not always straightforward. For direct clients of QV, we are happy to work with you and your tax professional to navigate to an optimal outcome.
