COVID-19 economic stimulus package
Updated March 25, 2020
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Updated March 25, 2020
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The Thursday, April 30 tax filing deadline for individuals is coming up fast. Here’s a summary of new limits, new rates, tax changes and new services.
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Learn how to maximize long-term tax benefits using tax-sheltered or tax-deferred registered plans.
One of the biggest benefits of registered plans in Canada is the tax-deferral opportunity on the compound growth inside the plans. In other words, registered plans generally allow investors to avoid the periodic tax on investment income generated; non-registered plans, in contrast, expose investors to annual taxation of income distributions. Without the annual “tax-drag,” investments in registered plans can grow faster than investments in non-registered plans. Given that, which registered plan is best to use? Here are key factors to consider when deciding whether to invest in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA).
RRSP contributions are deductible against income, and RRSP redemptions are 100% taxable as income. TFSA contributions are made with after-tax money, and TFSA withdrawals are tax-free. Funds grow inside both plans on a tax-deferred basis.
RRSPs and TFSAs are, in fact, designed to be tax neutral, assuming a constant marginal tax rate (MTR). When an investor has a constant MTR throughout his or her working and retirement years, there should be no difference between an RRSP and a TFSA in net after-tax income.
