Category Archives for "Investments"

What is a Pooled Registered Pension Plan?

By Randall Orser | Investments , Personal Finances , Personal Income Tax , Retirement

A few years back the Canadian government was realizing that people weren’t saving for retirement, and that the Canada Pension Plan (CPP) would have to go through drastic rate increases that would devastate the economy. So, the Pooled Registered Pension Plan (PRPP) was created.

A PRPP is a retirement savings option for individuals, including self-employed individuals. A PRPP enables its members to benefit from lower administration costs that result from participating in a large, pooled pension plan. It's also portable, so it moves with its members from job to job. Since the investment options within a PRPP are like those for other registered pension plans, its members can benefit from greater flexibility in managing their savings and meeting their retirement objectives.

Contributing to a PRPP

Like RRSPs, the maximum amount that a member or employer can both contribute to a PRPP in each tax year without tax implications is determined by the member's RRSP deduction limit.

Any employer PRPP contributions, combined with a member's contributions to their PRPP, RRSP, SPP, and spouse or common-law partner's RRSP and SPP, that are above the RRSP deduction limit may be considered excess contributions. It is important for members to know how much unused contribution room they have available in each tax year.

Any contributions made to a PRPP that are not deducted on the member's income tax and benefit return in each year are referred to as unused RRSP contributions. If a member withdraws the unused contributions from his or her PRPP, an offsetting deduction may be claimed. For more information, see What to do with unused registered savings plan contribution and "Withdrawing unused contributions" in Guide T4040, RRSPs and other Registered Plans for Retirement.

A member can make voluntary contributions to their PRPP between January 1 in each year and 60 days into the following year, up until the end of the year in which they turn 71. Member contributions are deductible on their income tax and benefit return, but the deduction must not exceed the difference between their RRSP deduction limit and the employer's contributions to their PRPP.

Death of a PRPP member

Like other registered retirement plans, when a PRPP member dies, all property held in the PRPP account is deemed to have been distributed immediately before the date of death. The fair market value (FMV) of the assets held in the account less any amounts paid to a qualifying survivor is included in the deceased member's income on the final income tax and benefit return.

In the case of the death of a member who had a spouse or common-law partner, if the deceased member's spouse or common-law partner was named in the agreement with the financial institution, the surviving spouse or common-law partner become a surviving member of the plan, taking over ownership and future direction of the PRPP account for the deceased. The surviving member is then entitled to receive a lump-sum payment from the PRPP or can choose to transfer the funds directly, on a tax-deferred basis, into another investment plan such as another PRPP, RRSP, SPP, RRIF or RPP.

Financially-dependent child or grandchild

In the case of a PRPP member who has a financially-dependent child or grandchild, the child or grandchild, if designated, will as a qualifying survivor, receive the funds from the deceased's member's PRPP account up to any amount designated. Since payments made from the PRPP are taxable, the child or grandchild would include the amount received as income on his or her income tax and benefit return. Same as for RRSPs, the amount received can be used to purchase a qualifying annuity.

If the financially-dependent child or grandchild has a physical or mental infirmity and is eligible for the disability tax credit (see line 316 – disability amount), the lump-sum amount from the deceased's PRPP can be directly transferred or "rolled over" on a tax-free basis, into a registered disability savings plan for an eligible individual.

Breakdown of the marriage or common-law partnership

A spouse or common-law partner or former spouse or common-law partner of a PRPP member, who is entitled to the funds from the member's PRPP account because of a breakdown of the marriage or common-law partnership, may transfer the lump-sum amount to: another registered plan such as another PRPP, RRSP, SPP, RRIF or RPP of the individual; or purchase a qualifying annuity.

Investment options

The investment options available for PRPPs are like those available for other registered plans, but there are some restrictions. The Income Tax Act does limit the type of investments that can be held in a PRPP to prevent tax avoidance planning. For example, a member cannot hold restricted investments in a PRPP such as their mortgage or debts, and shares of companies in which members have a significant interest.

The Pooled Registered Pension Plan (PRPP) is another great way for you to save for retirement, and, perhaps, save on the fees associated with other plans. What are you doing for retirement? If RRSPs, don’t make sense then look into the Pooled Registered Pension Plan (PRPP).

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Should I Invest in my TFSA or RRSP?

By Bonnie Sainsbury | Investments , Small Business

When you start thinking about your retirement, you need to consider what vehicle to use for that retirement. You can obviously use more than one vehicle too. We’re talking about whether you should use a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP). Before you do anything, you should talk to your financial planner.
Tax-Free Savings Account (TFSA)
What is a TFSA?
The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.  Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible.
• This is a savings account where you can invest in any type of investment you want, depending on your risk tolerance level.
• Withdrawals will be added to your TFSA contribution room at the beginning of the following year.
• You can replace the amount of the withdrawal in the same year only if you have available TFSA contribution room.
• On your death, the TFSA is disbanded and any earnings after your death are taxed, or transferred to your spouse
• Your contribution limit only goes up by $5,500 per year.
• Direct transfers must be completed by your financial institution.
• A tax applies to all contributions exceeding your TFSA contribution room.
A TFSA is a great way to save for retirement. Especially if you ever need to withdraw the funds to cover something, you can put it back when you have the funds, and the contribution room. However, if you need a tax deduction, then it may not be the way to go.
Registered Retirement Savings Plan (RRSP)
An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax if the funds remain in the plan; you generally must pay tax when you receive payments from the plan.
• You can contribute up to your limit every year, and get that amount taken off your current income, no matter what that income.
• You accumulate your contribution amount every year that you don’t use it.
• You can go up to $2,000 over your contribution limit without being taxed on that over contribution.
• You can contribute to a RRSP for your spouse, and claim the deduction, and any withdrawals are taxed as that spouses’ income.
• You can invest in bonds, mutual funds, or securities (listed on a designated stock exchange).
• Only employment (T4) income is used to calculate your contribution limit every year.
• Any other pension contribution is applied against your contribution limit, thereby reducing what you can contribute yourself.
• You are taxed on any contributions that go more than $2,000 over your contribution limit.
A RRSP is a great way to save for your retirement, and get a deduction off your income for tax purposes. However, you do need to have the income in order to grow your contribution room, and the funds in order to contribute.
A good plan is to get in touch with a financial planner who can help you come up with a retirement plan, and how you can invest your funds into a RRSP or a TFSA. Or, maybe both. You need to know your contribution levels before you talk to a financial planner. You can do that via My Account. If you don’t have that yet, then sign up for it here.

Investing Strategies to Minimize Your Tax Bill

By Randall Orser | Investments , Personal Income Tax , Small Business

Deduction Save on Taxes Loopholes Exemptions on CalculatorInvestors tend to be delighted by a winning year in the markets until they get clobbered by a big income tax bill.  While taxes aren’t completely avoidable, there are a number of strategies you can use to minimize them:

Tax consequences of mutual funds, ETFs, and Individual Stocks

1) Mutual funds tend to incur higher tax bills than other forms of investment, unless you are a frequent trader. Avoid mutual funds that jump in and out of stocks frequently.  The more a mutual fund trades the more tax bills you will incur.  Index funds usually have the lowest tax bills of all the mutual funds.

2)  Consider substituting exchange-traded funds (ETFs) for mutual funds.  ETFs can still incur unwanted taxes, since they must buy and sell to match a particular index.  Unlike mutual funds, however, you won’t incur taxes due to other investors’ redemptions.  By buying and selling directly on the market, you control when you incur gains.  Unfortunately, ETFs are not as useful when dollar cost averaging with small amounts of money, so smaller and more cautious investors may not be able to take advantage of this feature.

3)  Individual stocks are the most tax-friendly of all, assuming you are a long-term investor, but you’ll need to do more work to invest in them intelligently.  By holding sound companies for many years, you can build wealth while incurring no tax at all (except on any dividends the companies may pay).

Minimizing taxes by selling winners at the right time

1)  Avoid selling stocks and funds just because you have profits.  Studies show that frequent traders do worse than long-term holders.  Sell only when you have lost confidence in the future of a stock or fund.

2)  Go for long-term capital gains treatment whenever possible.  The capital gains tax is lower on long term gains than on short term ones.  Long term gains treatment occurs whenever an investment is held for a period of more than one year. Thus, it is foolish to take gains in less than a year unless you believe the stock is due for a significant price drop.

Minimizing taxes by selling losers at the right time

1)  It is often advantageous to sell your losers before year’s end.  You are allowed to claim your capital losses in any given year, and losses can be used to offset capital gains. Losses not used can be carried over and used in the next tax year. There are two times when you might want to hold on to your losers: a) The company is a sound one, and you have carryover losses from the previous year that already offset all your gains and allow you the maximum possible deduction or b) You believe that a turnaround in the share price is immanent, and that it will exceed the benefit of taking the loss.

Keep in mind that the Superficial Loss Rule prevents you from repurchasing any stock upon which you’ve claimed a loss for a period of 30 days.  Failure to observe this rule could mean your loss will be disallowed and added to the cost of the newly purchased stock.

2)  Try to balance gains and losses.  When you want to take a big gain, look for losses you can balance against it to minimize your tax bill.

Minimizing taxes by holding assets in retirement accounts

You can avoid or postpone taxes on dividends and gains by holding stocks and bonds in an RRSP or TFSA account.  In a RRSP, gains are tax free until you withdraw the funds. In a TFSA, they are tax free forever.

It is therefore advantageous to hold bonds, high-yielding stocks, and stocks you trade frequently in your RRSP or TFSA account, and keep non-registered accounts for your long-term, low-yield holdings.


You can save money on your taxes by carefully considering the type of investment you purchase, the times when you buy or sell it, and whether you hold it in registered (RRSP or TFSA), or a non-registered account.  By saving money on your taxes, you increase your total returns.  Remember, though, that you’re in the market to make money.  Never let tax considerations keep you from selling a stock whose best days are over.

Take a Tax Holiday with a TFSA

By Randall Orser | Investments , Small Business

tfsaThe Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.  Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are also not deductible.

The TFSA isn’t just a vehicle for the ‘rich’ as many would believe. You can put as little as $50 per month into a TFSA. The advantage to the TFSA over the RRSP, is that you can take the money out as needed without being taxed on the withdrawals. Withdrawals will be added to your TFSA contribution room at the beginning of the following year. You can replace the amount of the withdrawal in the same year only if you have available TFSA contribution room. I much prefer the TFSA over the RRSP for anyone who already has a work pension, or is prone to take the funds out before retirement.

You can have more than one TFSA at any given time, but the total amount you contribute to all your TFSAs cannot be more than your available TFSA contribution room for that year. To open a TFSA, you must do the following:

  • Contact your financial institution, credit union, or insurance company (issuer); and
  • Provide the issuer with your social insurance number and date of birth so the issuer can register your qualifying arrangement as a TFSA. Your issuer may ask for supporting documents.

There are three types of TFSAs that can be offered: a deposit, an annuity contract, and an arrangement in trust. Banks, insurance companies, credit unions and trust companies can all issue TFSAs. You can set up a self-directed TFSA if you prefer to build and manage your own investment portfolio by buying and selling different types of investments. For more information, contact a TFSA issuer.

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA. Starting in 2009, TFSA contribution room accumulates every year, if at any time in the calendar year you are 18 years of age or older and a resident of Canada.

You will accumulate TFSA contribution room for each year even if you do not file an income tax and benefit return or open a TFSA.

  • The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.
  • The annual TFSA dollar limit for the years 2013 and 2014 was $5,500.
  • The annual TFSA dollar limit for 2015 is $10,000.

Our current government in its infinite wisdom has change the TFSA limit, starting January 1, 2016, the annual TFSA dollar limit for 2016 will decrease from $10,000 to $5,500.00. The TFSA annual room limit will be indexed to inflation and rounded to the nearest $500.

The TFSA contribution room is made up of: your TFSA dollar limit plus indexation; any unused TFSA contribution room from the previous year; and any withdrawals made from the TFSA in the previous year.


Jacquie was eager to open her TFSA, but she didn’t turn 18 until December 21, 2013. On January 4, 2014, she opened a TFSA and contributed $11,000 ($5,500 for 2013 plus $5,500 for 2014 – the maximum TFSA dollar limits for those years). On the advice of her broker, she had opened a self-directed TFSA and invested in stocks that outperformed the market. By the end of 2014, the value in Jacquie’s TFSA had increased to $11,800. Jacquie was worried that for 2015, she would only be able to contribute $9,200 (the TFSA dollar limit of $10,000 for 2015 less the $800 increase in value in her TFSA through 2014). Neither the earnings generated in the account nor the increase in its value will reduce the TFSA contribution room in the following year, so Jacquie can contribute up to another $10,000 in 2015 to her TFSA.

I believe the TFSA is a great way to save for your retirement, or even to save for some future event, such as a major vacation or even home purchase. Take advantage of the TFSA and do your best to contribute the $5,500 per year, or more as it increases. If you have a pension plan now, or don’t have the income, or type of income, for RRSPs, then the TFSA is definitely for you.