Registered Investments Plans in Canada

January 1, 2016

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In Canada, the government has established registered plans that allow certain tax benefits for saving. Here are the three main plans:

Registered Retirement Saving Plan (RRSP)

Here are Canada’s registered plans used for retirement planning:

• Registered Retirement Savings Plan (RRSP) allows you to defer tax on your investments and achieve some tax relief.
• Tax-Free Savings Plan (TFSA) allows you to save money while deferring investment income on the after-tax monies invested.
• Post-Secondary Education Planning — as we discuss educational planning, we will examine the best educational plans.
• Registered Education Plan (RESP) allows you to defer tax on your educational investments and achieve some tax relief.

Registered Educational Savings Plan (RESP) for Education

In Canada, the best vehicle to save for a child’s education is the Registered Educational Savings Plan (RESP). The Government of Canada will also help you save money through the Canada Education Savings Grant (CESG). If you live in Alberta and have an RESP, additional grant money is available with the Alberta Centennial Education Savings Plan.

Parents, guardians, grandparents and other relatives or friends can open an RESP account for a child as long as the child has a valid Social Insurance Number (SIN), a birth certificate or permanent resident card. A child can be named in one or more RESPs. Up to $50,000 per child can be deposited to an RESP with no annual limits. A family plan can have one or more children related to you (your children, adopted children, grandchildren, brother or sisters) as named beneficiaries of the RESP.

Tax-Free Savings Account (TFSA) for Savings

A Tax-Free Savings Account (TFSA) is a registered savings account that makes it easy for Canadian taxpayers to earn investment income, as the account title states, tax-free.

The TFSA has now been reverted back to $5,500 from $10,000 contribution per year. Here are the facts:

  • The new Liberal government announced that they would reduce the contribution amount for TFSA and re-introduce indexing to inflation for the annual limit. The upside is that they also said they will allow Canadians to keep the full $10,000 of contribution room for 2015, whether they used it or not.
  • Effectively they “grandfathered” the $10,000 TFSA limit for 2015 meaning that there is really no urgency to rush out and get that $10,000 contributed for 2015. That contribution room will carry forward indefinitely.
  • The total contribution amount for January 1, 2016, for a Canadian who has never contributed to a TFSA will be $46,500 if the individual was 18 or older in 2009 when the TFSA was created.

Registered Disability Savings Plan (RDSP) for the Disabled

The Registered Disability Savings Plan (RDSP) helps Canadians with disabilities and their families save for their future financial security. Canadians under age 60, eligible for the Disability Tax Credit (Disability Amount), can use the RDSP.

There is also the Canada Disability Savings Grant where the government of Canada contributes to an RDSP.

Please contact me to discuss the registered plans in relation to your investing.

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