Most Canadians are aware that the deadline for contributing to one’s registered retirement savings plan (RRSP) is 60 days after the calendar year end – in order to be claimed on the return for 2016, such contributions must be made before March 2, 2017. Many also know that contributions to a tax-free savings account (TFSA) can be made at any time during the year. Consequently, when Canadians start thinking about year-end tax planning or saving strategies, RRSPs and TFSAs aren’t often top of mind. The fact is, however, that there are some situations in which planning strategies involving TFSAs and RRSPs must be put in place by the end of the calendar year. In other situations, acting before the end of the calendar year, while not required, will produce a better tax result. Some of those situations are outlined below, and a team of experienced accountants are able to assist you through the process.

Accelerate any planned TFSA withdrawals into 2016
Each Canadian aged 18 and over can make an annual contribution to a Tax-Free Savings Account (TFSA) – the maximum contribution for 2016 is $5,500. As well, where an amount previously contributed to a TFSA is withdrawn from the plan, that withdrawn amount can be re-contributed, but not until the year following the year of withdrawal.

Consequently, it makes sense, where a TFSA withdrawal is planned within the next few months, perhaps to pay for a winter vacation or to make an RRSP contribution, to make that withdrawal before the end of the calendar year. A taxpayer who withdraws funds from his or her TFSA before December 31, 2016 will have the amount withdrawn added to his or her TFSA contribution limit for 2017, which means it can be re-contributed as of January 1, 2017. If the same taxpayer waits until January of 2017 to make the withdrawal, he or she won’t be eligible to replace the funds withdrawn until 2018. Please contact our team of accountants for more information.

Make spousal RRSP contributions before December 31
Under Canadian tax rules, a taxpayer can make a contribution to a registered retirement savings plans (RRSP) in his or her spouse’s name and claim the deduction for the contribution on his or her own return. When the funds are withdrawn by the spouse, the amounts are taxed as the spouse’s income, at a (presumably) lower tax rate. However, the benefit of having withdrawals taxed in the hands of the spouse is available only where the withdrawal takes place no sooner than the end of the second calendar year following the year in which the contribution is made. Therefore, where a contribution to a spousal RRSP is made in December of 2016, the contributor can claim a deduction for that contribution on his or her return for 2016. The spouse can then withdraw that amount as of January 1, 2019 and have it taxed in his or her own hands. If the contribution isn’t made until January or February of 2017, the contributor can still claim a deduction for it on the 2016 tax return, but the amount won’t be eligible to be taxed in the spouse’s hands on withdrawal until January 1, 2019. It’s an especially important consideration for couples who are approaching retirement who may plan on withdrawing funds in the relatively new future. Even where that’s not the situation, making the contribution before the end of the calendar year will ensure maximum flexibility should an unanticipated withdrawal become necessary. Our team of accountants can assist you with your spousal RRSP contributions and the rules surrounding them.

When you need to make your RRSP contribution on or before December 31
While most RRSP contributions to be deducted on the return for 2016 can be made anytime up to an including March 1, 2017, there is one important exception to that rule. Every Canadian who has an RRSP must collapse that plan by the end of the year in which he or she turns 71 years of age – usually by converting the RRSP into a registered retirement income fund (RRIF) or purchasing an annuity. An individual who turns 71 during the year is still entitled to make a final RRSP contribution for that year, assuming that he or she has sufficient contribution room. However, in such cases, the 60-day window for contributions after December 31 is not available. Any RRSP contribution to be made by a person who turns 71 during the year must be made by December 31st of that year.

Navigating your finances can be overwhelming, and we always recommend seeking the help of an accountant or team of accountants to help secure your financial well being. For more information or assistance in your year end preparations, please reach out to us. Our team of professional and experienced accountants can guide you through the process.