* Earned income and your
RRSP

Your maximum RRSP
deduction is based on your
earned income in the pre-
vious year and unused
contribution room from
prior years. What is con-
sidered earned income?
Common forms of earned
income include income
from employment, your
unincorporated business,
and net rental income.
Losses from these sources
reduce earned income.
Your earned income is
increased by any taxable
alimony or maintenance
ou receive and reduced
by any deductible alimony
or maintenance you pay
during the year.
- Earned income does not
include investment income
[e.g., capital gains, interest
and dividends) or retira-
ment income (e.g., RRIF
incame, old age security
and Canada Pension]
except certain disability
pensions.

When should you make
your RRSP contributions?

You can make an RRSP
contribution at any time
during the year.
Contributions during the
first 60 days of a year can
be deducted for the prior
year or the current year. A
single contribution can be
split ‘between the two
years. For the contribution
to be deductible for 2000,
it must be made by March
1, 2001,

The best policy is to con-
tribute at the beginning of
the calendar year, which
will maximize the com-
pounding of the earnings
within the RRSP.

What die’ thie advantages ”

of contributing to a
spousal RRSP?
Spousal RRSPs can

achieve a shift of future
income from a higher
income spouse to a lower
income spouse. This can
result in significant overall
tax savings when the
spouse cashes in his or her
RRSPs. It also may reduce
the clawback of the Old
Age Security pension, and
allow the receiving spouse
to qualify for the Pension
Income Credit.

Provided no withdrawal
is made from spousal
plans for at least two cal-
endar years alter the year
of your last contribution to
any spousal plan, the
amount withdrawn wiil be
taxed in your spouse's
name.

Look into spousal RRSPs -
you could reduce your
taxes now and in the
future.

Can you borrow money to
make an RRSP
contribution?

Yes, you can borrow to
make an RRSP contribu-

RRSP

tion, but any interest you
pay on the borrowed
money will not be deducti-

le for income tax
purposes.

For this reason, it is gen-
erally better to use avail-
able cash rather than bor-
rowing. If you have to bor-
row to make the contribu-
tion, try to repay the loan
as soon as passible to
minimize the amount of
non-deductible interest.
Before borrowing, seek
professional advice to
ensure the benefits of mak-
ing an RRSP contribution
oulweigh the costs of
borrowing.

Information for RRSP Tips
is provided as a oublic
service by the Chartered
Accountants of British
Columbia.

What is a self-directed
RRSP and what are ifs
advantages?

A. self-directed RRSP
allows you to make a
wider variety of invest-
ments. The most common
self-directed RRSP invest-
ments are shares and
debts of public corpora-
tions, B.C. and Canada
Savings Bonds, mutual
funds, an ome
morigages.

There is usually an
annval administration fee
for a self-directed RRSP.
Such fees are no longer
tax deductible. You should
have at least $15,000 in
assets in a self-directed
RRSP to make it worthwhile
paying the average
administration fee.

If you‘re looking for more
control and flexibility over

our RRSP investments,
ook into a self-directed

? ee rer
tosabberessha tyeedaoe ped ae

~ Wheri can you withdraw

amounts from an RRSP .
ond what are the
consequences?

Provided the funds are _

not in a non-redeemable
investment or a locked-in
RRSP, you may withdraw
any portion of your RRSP
at any time.

in most circumstances,
you will pay tax on the
amount withdrawn from
an RRSP as it is considered
income in the year you
make the withdrawal,

When you make your
withdrawal, the financial
institution will retain a
small percentage as with-
holding tax. You'll get a
credit to
when you complete your
‘return for the year. You
may owe additional tax at
that time, or be entitled fo
a refund of part or all of
the tax withheld, depend-

our marginal tax

ing on i
~~ rate and other tex withheld

for the year,

Can you transfer your
RRSP from one financial
institution to another?

r the tox withheld -

RRSP Tips and Tax Tips

Yes you can, but be
aware that in order to
transfer an RRSP account
without triggering any
taxes, the transfer mus! be
payable to the new institu-
fion in trust for you. Your
new RRSP issuer arranges
the transfer. Between self-
directed plans, you can
transfer existing invest-
ments “in kind.” The trus-
tee of your present RRSP
may charge a nominal fee
against your RRSP for the
administrative work
involved in the transfer.

To avoid having the funds
stuck in the mail, thereby
Josing earnings, you may
be able to arrange to pic
up the cheque from your
present institution and
deliver it to the new institu-
tion, Or you can arrange
for a courier.

What fees are charged on
an RRSP?

You should be aware that
there may be fees associ-
ated with your RRSP. Fees
may be charged to your
RRSP when you make a
withdrawal, when .you
close your RRSP, or transfer
the funds to a different
RRSP issuer. These fees
range from as low as $25

to as high as $100.

RRSP contributions do not
have to be deducted in
the year they were made

Your RRSP deduction limit
is shown on your most
recent Notice of
Assessment, or you can get
it be telephoning Canada
Customs & Revenue
Agency’s TIPS line toll-free
at 1-800-267-6999. You
will need your 1999 tax
return in front of you when
you call.

Any RRSP contribution
made within this deduction
limit, plus an overcontribu-
tion of up to $2,000, can
be carried forward without

enalty and deducted in
fiture years. IF you know
you are going to be in a

igher tax bracket in one
or more future years, you
may avoid far more tax by
carrying contributions for-
ward and deducting them
in those years.

information for RRSP Tips
is provided as a public
service by the Chartered
Accountants of British
Columbia.

As well, most trusteed Fam

RRSPs may have an annual
administration fee, and
may have transaction fees.
These are not tax

deductible.

Mutual fund RRSPs
charge management
expenses, and you may
also pay a front-end or
back-end (deferred sales
charge} load fee.

Before you decide to
invest in any RRSP, find out

2 ‘phat the annua costs aré,’
ind ‘the ‘fees far winding,

““Upithe plan:

RRSPs: make your
contribution ear

It is a great long-term
advantage to contribute to
an RRSP each year, espe-
cially if you are-young and
a long way from retire-

ment. 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, contribu-
tions within your deduction
limit, or to an excess of
$2,000, can be carried
forward indefinitely, with-
out penalty, for deduction
in future years. This could
be a substantial advantage

if you make the deductions -

in years when you'will be
in a higher tax bracket,

For your RRSP contribu-
tion to be deductible for a
parlicular tax year, the
decdlline is the 60th day of
the following year. For the
2000 tax year, the dead-
line is March 1, 2001.

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