Tax Tips: Delay that RRSP deduction

While there is little one can do about the vagaries of the stock market, there is plenty an advisor can do to help clients control how much tax money they fork over to the CRA.

It’s often said a dollar saved is a dollar earned. Here are some conversation starters advisors can use with clients looking for ways to pay less tax and help them make some changes to reduce the tax burden for the year.

There is a lot of uncertainty around the timing of RRSP contribution. One of the things taxpayers need to consider is whether it makes sense to defer their RRSP contribution.

Most people will want to make a 2011 RRSP contribution by the leap-year date of February 29, 2012, says Gary Dent, national tax leader at Grant Thornton. However, they can delay their RRSP contribution if they expect to be in a higher tax bracket in the near future, or make the maximum contribution each year but hold off claiming the amount as a deduction until a future year when their taxable income is higher.

“I always want to make sure I’m claiming my RRSP contributions in a year when I’m in a relatively high tax rate,” he says. “If an individual contributes to an RRSP and finds for whatever reason his tax rate in 2011 is not going to be as high as it might be in 2012 or 2013, he doesn’t have to take the deduction for the contribution made or he doesn’t even have to make the contribution, as unused contribution room carries forward indefinitely.”

Just because the contribution has been made, doesn’t mean the client has to deduct. “You can carry that deduction forward; the income is still in the plan and it still generates tax deferred.”