Graphic Arts Magazine December 2017 / January 2018 | Page 32
Column
TFSA or RRSP? Which to choose?
Elliot Schiller
It depends on your tax bracket and savings goals
As the tax-filing season is here once again, it’s time to think
about how best to maximize your financial wealth. The graphic
arts industry employs over 10,000 Canadians, mostly in what
Stats Canada calls small- to medium-sized businesses. These
employees range in age from first employment to seniors who
are ready to retire soon. Likewise, their tax brackets range
from lowest to highest. Furthermore, their savings objectives
can be very different, and that’s why there is not often an
obvious answer to the question: “Where should I invest my
pre-tax dollars to gain the best financial benefit?”
Beyond the tax shelter
Both the contributions to RRSPs and TFSAs shelter you from
immediate tax consequences as long as these investments
remain within their respective accounts. The RRSP further
provides the benefit of reducing your taxable income,
reducing your immediate tax payable. However, when you
remove the funds from your RRSP, preferably during retire-
ment when you have less sources of taxable income—and
therefore a lower tax bracket—the money withdrawn
becomes fully taxable. TFSAs, on the other hand, don’t
reduce your taxable income—which means that they don’t
incur taxes when they are withdrawn.
In the December 2014 issue of Graphic Arts Magazine, I
provided a detailed look at the actual return on investment
advantages of an RRSP (see Should you invest in an RRSP?).
Bottom line: If you continue to invest yearly into an RRSP,
and don’t withdraw the money until retirement, RRSP is
almost always a better financial investment than a TFSA.
Further, dollar for dollar, an RRSP investment increases your
current cash flow, even if it reduces your income when you’re
in your seventies—and most people with families need the
cash flow now.
This is not necessarily true in situations where you can’t
afford to be without access to the savings until retirement.
For example, if you’re young or a parent of young children,
you have many more financial requirements on the hori-
zon—such as marriage, education costs, children’s
weddings, children coming-of-age events, down payments
for a new home, family vacations, etc. In other words, you
know that you can’t put your money away until retirement,
or comply with the stringent rules of “borrowing” money
from your RRSP. In those cases, TFSA’s become much
more attractive.
Spousal RRSP and other considerations
Now that doesn’t seem like such a complex choice. How-
ever, there are other considerations. What if you’re a
32 | December 2017 / January 2018 | GRAPHIC ARTS MAGAZINE
single-income family, or a family where the income disparity
between spouses results in significantly different tax brack-
ets. A spousal RRSP enables the couple to gain all of the
benefits as described above, and adds the benefit of mov-
ing income to the lower earner. While that has no effect on
current wealth, it will mean that at retirement age, as the
RRSP was split, each spouse will likely be in a lower tax
bracket and pay less tax than if all the income was with
one of the partners.
Do you have a home that has a mortgage that you’re paying
off? Do you want to invest in an RESP (Registered Education
Savings Plan) for your children? Are you an owner, or a
healthy middle-aged employee who intends to work beyond
the age of 71 (the age when you must start withdrawing
taxable funds out of your RRSP)?
With respect to your mortgage, most financial experts agree
that it’s always best to pay down your mortgage first. How-
ever, while this is a simple rule of thumb, it hasn’t been as
financially beneficial in
the past year with home
interest rates low and
the stock market high
(where your RRSP or
TS FA funds may
reside).
Regarding RESPs, the
federal government
matches 20% of your
contribution for each
child to an annual max-
imum of $500 or $7,200
over the life of the plan.
In Alberta and Quebec,
there is also provincial
matching.
If you intend to work
beyond 71 years, the
current mandatory
age when to begin
withdrawing RRSP
funds, you’ll probably
not have a significant
future tax advantage.
If you intend to work
beyond 71 years, the current mandatory age when to begin
withdrawing RRSP funds, you’ll probably not have a signifi-
cant future tax advantage. Nevertheless, this author has
always followed the philosophy that since we don’t know
what the future will bring, it’s best to save the tax dollars
now. Happy holidays!
Elliot Schiller is a Director at Toronto’s Teeger Schiller Inc., a firm
specializing in government funding and systems selection/
implementation. His clients receive over $5 million annually to support
ongoing business innovation. E-mail [email protected],
visit www.FundingHelp.ca or phone 1-888-816-0222 Ext. 102
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