Kylie has just graduated from university and has landed her first job in marketing, earning about $35,000/year. Her income is expected to grow significantly over the years. She wants to start saving some of her money and wants to invest it in the most efficient way over the long run. Which strategy would provide the most tax efficiency:

1. Invest into RRSPs only
2. Invest in non-registered accounts only
3. Invest in TFSAs only
4. Invest into TFSAs for the first several years and then also invest into RRSPs later on when her income tax bracket grows
5. Invest into RRSPs, TFSAs, and non-registered accounts all at the same time

View the answer

Answer: d. Kylie can be most strategic in tax savings by investing in TFSAs while her income tax bracket is lower. When her income is higher, she should make use of RRSPs and she could even transfer some of her TFSAs into her RRSPs later on to make good use of a tax deduction at a higher tax rate.

Charlie, a physician, is 72 years old and still working full time. His wife Tammy is 65 years old and works part-time while looking after grandchildren a few days a week. Charlie has always maximized his RRSPs each year. Charlie’s income is quite high and he is concerned that his tax bill will be much higher this year because he isn’t able to put money into his RRSP this year (he was forced to convert his RRSP to a RRIF last year).

What is a way for Charlie to keep his tax bill lower to be similar to the year before?

1. Split his pension income with Tammy
2. Make a spousal RRSP contribution in Tammy’s name
3. Transfer his portfolio into a spousal trust
4. Split his capital gains with Tammy

View the answer

Answer: b. Charlie is able to continue to make RRSP contributions into a spousal RRSP in Tammy’s name. This gives Charlie the same full RRSP deduction he is used to. He is able to do this for another ~6 years, until the year Tammy turns 72.

Sylvie has held a portfolio of stocks since she was in her early thirties. It has been 4 decades and her non-registered portfolio of stocks has grown immensely over the years, with a significant amount unrealized capital gains. Sylvie gives $20,000 to various charities each and every year using her cash on hand. What is a more efficient way for her to donate to charity?

View the answer

Answer: Sylvie may be able to donate some of her non-registered stocks in-kind to charity if they are able to accept securities. When donating securities with accrued capital gains “in-kind” to a charity, you are generally able to benefit from the elimination of capital gains tax. This is in addition to being able to use the donation tax credit for the full amount of the donation.

Bob is retired and earns income from various sources – these include return of capital, dividends, capital gains, interest, and rental income. What is the order that these types of income are taxed the most, from greatest percentage taxed to least?

View the answer

Answer: Interest and Rental (100% taxable), dividends, capital gains, return of capital.

Tanya and Simon have been married since they were 20 years old. They are now 65 years old and both are about to start receiving CPP and OAS. Simon was a homemaker for many, many years and only contributed a small amount into his CPP. Tanya worked and maximized her CPP every year throughout her many decades of work and her CPP income is estimated to be quite high. Tanya has just found a new passion and has started to earn a significant amount of money each year in her new business. Tanya and Simon have not contributed to RRSPs before.

What is the best way to lower the family tax bill?

1. Tanya should invest in TFSAs
2. Tanya should contribute to a spousal RRSP
3. Tanya and Simon should opt to share their CPP
4. Both b. and c.

View the answer

Answer: d. It would be most advantageous for the couple to share their CPP as well as for Tanya to contribute to a spousal RRSP. As Tanya’s income is high, she is able to contribute to an RRSP with a full tax deduction. Since Simon’s income is very low, a spousal RRSP would be even more tax-efficient as then all the RRSP withdrawals could be taxed solely in Simon’s name. Tanya’s CPP income is already much higher than Simon’s. They are able to share their CPP so that the CPP credits during the time they were together are split between the two of them. This will increase Simon’s share of the CPP and reduce Tanya’s.