Tax deadlines, RRSP contributions, tax deductions - it's all very confusing. Not to mention stressful when you're being threatened with interest and penalties for doing it wrong 😰.
We'll break down the rules and tips you need to know for the following:
- Making an RRSP contribution
- Filing your taxes
- Getting a tax refund or owing taxes
Part 1 - RRSP Contributions:
When? The deadline for your 2018 RRSP contribution is March 1st, 2019 (not to be confused with the tax-filing deadline of April 30th). Most institutions allow a midnight deadline, but why push it? Make your deposit anytime before then.
Why? The benefits of making RRSP contributions are two-fold:
- You're building your savings
- You'll get an income-tax deduction for the amount you contribute. This means more money in your pocket!
Amount of tax savings = contribution amount x your marginal tax rate. Example: If you contribute $1,000 and your marginal tax rate is 30%, your tax bill goes down by $1,000 x 30% = $300. If you don't owe tax, the CRA will write you a cheque for $300 🙌.
Tip: If you're not sure what your marginal tax rate is, you can simply google your annual pre-tax income and province of residence to find out.
How much can you contribute? Unfortunately, there are rules on how much you can put into your RRSP. Your "total available contribution room" is updated every year. Locate your contribution room for 2018 on your 2017 Notice of Assessment (the document you get back from the CRA a few months after filing).
If you put more than that in your RRSP during the year, you'll have to pay a penalty or fill out a bunch of annoying CRA forms. If you put in less, don't worry - any unused room is carried forward to next year.
Not sure how much to put in your RRSP? Think about (1) how much you can reasonably save and (2) what you plan to do with the money. Remember, you can't take money out of your RRSP without being taxed, besides $25,000 to purchase your first home or $20,000 to go back to school. If you want a more flexible savings vehicle, you may want to consider a TFSA.
Sign-up for either a TFSA or RRSP with Wealthsimple here and get $10,000 managed for free.
If this still seems super confusing and you want some advice, learn more about our financial coaching service here.