With today’s high inflation, interest rates and taxes, Canadians are feeling the pinch. But there are things you can do to take control of—and build confidence in—your financial future.
You can’t control tax rates, but you can strategize where your wealth goes
Paying taxes is one of life’s certainties, but you can still make the most of your income by investing in tax-advantaged plans, like a Tax-Free Savings Account (TFSA), Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF).
Here are some suggestions on what to do with these programs.
Catch up on unused contributions
Take advantage of any unused TFSA and RRSP contribution room as soon as possible. That way, you can benefit longer from tax-free investment growth within your TFSA (your investment income is never taxed even when you make withdrawals) and tax-deferred growth within your RRSP (you’re only taxed when you eventually make withdrawals). Make sure you confirm your available TFSA and RRSP contribution room with a qualified tax advisor.
Make your annual TFSA contribution
Every Canadian aged 18 and older automatically receives additional TFSA contribution room each year they are a “tax resident” in Canada—it’s not tied to your earned income like your RRSP.
As of Jan. 1, 2024, you can contribute another $7,000 to your TFSA for a total of $95,000 since the TFSA was introduced in 2009 (assuming you were at least 18 in 2009).
You have until Feb. 29, 2024, to make your 2023 RRSP contribution and receive a tax deduction you can use on your 2023 tax return.
Let your RRSP grow
You must convert your RRSP into a retirement income source (such as a RRIF) by the end of the year in which you turn 71. You can convert it sooner, but if you have sufficient income from other sources, you may wish to consider waiting. That way, you let your RRSP continue growing on a tax-deferred basis that much longer.
Reinvest RRIF payments to earn tax-free income
If you have a RRIF, you’re required to withdraw a minimum amount annually, which is taxable at your marginal rate. If you don’t need the income, consider reinvesting your RRIF payments into your TFSA (if you have TFSA contribution room) where they can earn tax-free investment income.
When you need the income, you can make tax-free withdrawals—the amount you withdraw is added back to your available contribution room the following year.
Reduce future tax with a spousal RRSP
Do you expect your partner to be in a lower tax bracket during retirement? If so, consider contributing some or all of your available RRSP contribution room to a spousal RRSP.
When you contribute to a spousal RRSP, you receive the tax deduction. The income your spouse earns within it is generally taxed at their lower rate. This can help reduce your combined taxes.
Even if you’ve already converted your RRSP into a RRIF, you may still be able to contribute to a spousal RRSP if you’ve earned income. You have until Dec. 31 of the year in which your spouse turns 71 to do so.
You can’t control rising costs, but you can control how you stretch your dollars
The cost of living continues to rise, and if you’re retired and on a fixed income, it makes sense to take a close look at your expenses, switch to less-expensive options where possible and consider your needs versus your wants.
Regardless of your life stage, updating your budget and financial plan is a good move.
You can’t control interest rates, but you can control how you turn them to your advantage
On the one hand, you don’t want higher interest rates when you’re paying them. If you’re in that situation, consider how you can pay off higher interest debt or switch to lower interest options where possible.
On the other hand, higher interest rates are great when you’re being paid interest through fixed-income investments like bonds and Guaranteed Investment Certificates (GICs). In addition to offering interest and principal repayment guarantees, bonds and GICs are paying higher interest than they have in years, making them much more attractive for investors seeking income and stability in their portfolios.
You can’t control the markets, but you can control how you react to them
As an investor, it can be difficult to stick with your long-term plan during times of economic uncertainty. It’s only natural to feel nervous, but by avoiding the urge to “panic sell,” you may benefit over the long term as, historically, the markets trend upward.
A qualified advisor can help you navigate the ups and downs of the markets, guide you through the advantages of each tax-advantaged plan and help you decide which one best suits your needs.
This document has been prepared for use by the RBC Wealth Management member companies, RBC Dominion Securities Inc.*, RBC Phillips, Hager & North Investment Counsel Inc., RBC Global Asset Management Inc. Royal Trust Corporation of Canada and The Royal Trust Company (collectively, the “Companies”) and their affiliate, Royal Mutual Funds Inc. (RMFI). *Member – Canada Investor Protection Fund. Each of the Companies, RMFI and Royal Bank of Canada are separate corporate entities which are affiliated. “RBC advisor” refers to Private Bankers who are employees of Royal Bank of Canada and licensed representatives of RMFI, Investment Counsellors who are employees of RBC Phillips, Hager & North Investment Counsel Inc., Portfolio Managers who are employees of RBC Global Asset Management Inc., Senior Trust Advisors and Trust Officers who are employees of The Royal Trust Company or Royal Trust Corporation of Canada, or Investment Advisors who are employees of RBC Dominion Securities Inc. In Quebec, financial planning services are provided by RMFI which is licensed as a financial services firm in that province. In the rest of Canada, financial planning services are available through RMFI, Royal Trust Corporation of Canada, The Royal Trust Company, or RBC Dominion Securities Inc. Estate and trust services are provided by Royal Trust Corporation of Canada and The Royal Trust Company. If specific products or services are not offered by one of the Companies, clients may request a referral to another RBC partner. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but neither the Companies, RMFI, nor Royal Bank of Canada, nor any of its affiliates nor any other person can guarantee accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with your RBC advisor. None of the Companies, RMFI, Royal Bank of Canada nor any of its affiliates nor any other person accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein. In certain branch locations, one or more of the Companies may carry on business from premises shared with other Royal Bank of Canada affiliates. Notwithstanding this fact, each of the Companies is a separate business and personal information and confidential information relating to client accounts can only be disclosed to other RBC affiliates if required to service your needs, by law or with your consent. Under the RBC Code of Conduct, RBC Privacy Principles and RBC Conflict of Interest Policy confidential information may not be shared between RBC affiliates without a valid reason. ® / ™ Trademark(s) of Royal Bank of Canada. Used under licence. © Royal Bank of Canada 2024. All rights reserved.
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