With Canadian tax season winding down, all of us are likely looking for ways to reduce our contributions to CRA. We thought now would be a good time to remind people what options are out there for saving on a tax-deferred or tax-exempt basis, and their various features and best use cases. There are a number of tax-efficient options for Canadians to save for the future, but the question is often which one to prioritize. Many if not all of you are likely well familiar with RRSPs and TFSAs, but there is a new kid in town in the form of the First Home Savings Account (“FHSA”) and while current homeowners don’t qualify, many of us likely have family members that would.
The table below summarizes the key attributes of each of these accounts, and your Harbour Group advisor can provide you with more information on all of these plans.
Many of you may be looking at the list above and think “I’ve maxed out my RRSP and TFSA, and I don’t qualify for the FHSA”. Some of you may have already even started to gift funds to adult children to fund their TFSA. Given it is new and less well-known, we would suggest readers (or those with adult children) who qualify get to know the FHSA. It combines the most attractive features of the RRSP and TFSA with a tax deduction for contributions and tax-free withdrawal for a qualified real estate purchase. If not used to purchase real estate, it can be rolled into an RRSP. Frankly we are having a hard time thinking of a reason not to open one if you are qualified and have the excess funds to do so.
What about those looking to prioritize? The short answer is “it depends”. Choosing the best savings program for you will depend on various factors such as:
• Interest rates and expected rate of return on investments
• Risk tolerance
• Marginal tax rates
• Flexibility
• Personal habits
• Income-tested retirement benefits
We at The Harbour Group stand by ready to help by evaluating all of these variables and more between you and your advisor and our dedicated financial planning team.
Making a decision about where to save can give rise to a lot of competing priorities and variables. We find it is best to start by giving some thought to your personal goals and objectives to determine the best savings vehicle for you. Things to consider could include, what are these savings for and when will you need them? Do you want to minimize tax today or smooth tax over your lifetime? Where do your priorities lie? Once you've determined your goals and objectives, you can look at which considerations are the most important to you.
Typically, funds which are required on a shorter-term basis are best served by a TFSA, while longer-term retirement goals can be achieved in both RRSPs and TFSAs. FHSAs are unique in that they have a limited life and are designed for the eventual purchase of a home, but the flexibility to convert into an RRSP certainly widens the use case for those who qualify.
As you can see from the information above, there is often not a clear answer as to the “best” plan to focus one’s savings on, but we are here to help guide you toward the plan(s) that make the most sense for you and your family.
The Harbour Group
416-842-2300
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