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RRSP season (iStockphoto)

RRSP season



In pictures: Test your knowledge with these seven RRSP myths Add to ...

These seven common misunderstandings, provided by H&R Block Canada, could prevent you from making a successful contribution


RRSPs are tax free

RRSPs were designed to help Canadians save money for retirement, but you will still be taxed on the money when you start withdrawing it. However, your income should be lower in retirement, and so your income tax bill should be lower.

First 60 days must be claimed

You are allowed to make RRSP contributions in the first 60 days of 2014 and claim them on your 2013 tax return. But you can decide not to use the deduction on your 2013 return and save it for another year but you should still report the first 60 days of contributions on your return.

Contributions equal a tax refund

If you contribute $5,000 to an RRSP, you will not receive a $5,000 tax refund based on the RRSP contribution alone. Your tax refund amount depends on a number of factors, including your net income and other credits and deductions. There is no set equation, but if you earned $50,000 in 2013 and contributed $5,000 to an RRSP, you can expect to get about $1,100 in federal tax savings plus provincial savings.


RRSP loan interest is a deduction

If you secure a loan for a non-registered investment, then the interest you pay on the loan is a tax deduction. But RRSPs are registered investments and loan interest does not qualify for the deduction.

Losses can be claimed

Since your gains are allowed to grow tax-free within your RRSP, you are not allowed to claim losses within your account. You will just have less to include in income when you start making withdrawals.

RRSPs are guaranteed

Unlike certain bank accounts, your RRSP accounts are not guaranteed by any government body or organization.

RRSP withdrawals are not income

If you withdrew money from an RRSP in 2013, you will receive a T4RSP to report the money as income on your tax return. Even though your financial institution is obligated to withhold some funds for income tax purposes, it may not be enough to cover your tax liability. Early withdrawal means you lose all the tax benefits of making an RRSP contribution.
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