* 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plans for at least two cal- endar years alter the year of your last contribution to any spousal plan, the amount withdrawn wiil be taxed in your spouse's name.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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