Canada: The TaxLetter: RRSP Time - Where To Look To Fund Your RRSP Contributions

Last Updated: August 23 2016
Article by Samantha Prasad

My new year's resolutions never have anything to do with the gym or eating better. It's always focused on the same thing: ensure I get my Registered Retirement Savings Plan (RRSP) contributions in on time. If you have not yet had a chance to contribute towards your 2015 RRSP, keep in mind that you only have a couple of months left. The deadline this (leap) year is February 29. And in addition to timing, there might also be an issue of how to source your contributions if your bank account is a bit low after the holidays. There is always the easy answer: borrow to contribute. However, you may want to consider other financial resources from which to make an RRSP contribution.

Contributions in kind

If you own qualifying investments, it's possible to transfer these to an RRSP and obtain a deduction based on their market value. Some candidates for the contribution could include shares that trade on qualifying stock exchanges, Canada Savings Bonds, and so on. To do this strategy, you'll need to set up a self-directed RRSP (probably available from your broker on a low-fee basis), because they allow you to pick and choose your RRSP investments. Alternatively, it's possible to do a swap for an RRSP's cash or other assets of an equivalent value. In this case, though, a tax deduction will not be received.

Either way, though, there will be a "deemed sale" based on the current market value of the transferred assets. If the value is different than the cost, Canada Revenue Agency can challenge in two different ways. First, if the investment has gone up in value, there will be capital gains tax to pay. But, you may also have offsetting capital losses if you sell off other investments that have gone down in value. Even if you don't have any losers in your portfolio (which is not a bad problem), since the contribution itself will shelter at least double the capital gains tax, these contributions may not be a bad idea, especially if you would not otherwise have the resources to make a contribution.

If your investments have gone down since you originally invested, another set of tax rules known as "stop-loss rules" may deny the loss (this applies when you sell and you (or an "affiliated person;" i.e., a spouse or minor child) reacquire the investment within 30 days). One potential alternative that may avoid the stop-loss rules is that you could sell your shares on the market and have the RRSP reacquire the same investment. Be warned though: some Canada Revenue Agency Technical Interpretations suggest that the General Anti-Avoidance Rule (GAAR) might apply in these cases. Whether Canada Revenue Agency would succeed on this basis (especially in light of certain Supreme Court decisions on GAAR), or even bother to make a federal case about your tax file to begin with, is another matter.

Retiring allowances

A large severance payment may present a great opportunity for a catch-up contribution. Kicking the payment into your RRSP may shelter tax you would otherwise pay on the severance itself.

For longer-standing employees, there's another opportunity to enlarge your RRSP contributions as a result of a severance payment, as this type of payment usually qualifies as a so-called "retiring allowance," if you were in the job during 1995 or previously. The amount per year that you can contribute to your RRSP— this is over and above your normal RRSP limits—is $2,000 for each year between 1989 and 1995 during which you had the job. (For years of service prior to 1989, the extra RRSP contribution room can be hiked from $2,000 to $3,500, except for years where employer contributions to a pension or deferred profit-sharing plan have since "vested.")

If your employer transfers the retiring allowance directly to an RRSP, withholding on the payment can be avoided. Otherwise, you must make the retiring allowance contribution by the normal RRSP deadline for the year in which the retiring allowance is received. By the way, you can't contribute a retiring allowance to a spousal RRSP.

Should I borrow to make an RRSP contribution?

I alluded to having to head to the bank to get the requisite amount of funds, which may give you a bad taste in your mouth. When you think about it though, by making an RRSP contribution instead of paying down your mortgage, you are, in effect, borrowing to contribute to your RRSP; i.e., by leaving your mortgage outstanding. Leaving your mortgage outstanding and taking out an RRSP loan are pretty well the same strategy. So borrowing may make sense, if you think you can make a better return on your RRSP than the interest you pay, especially if you expect your tax bracket to drop when you retire (this includes borrowing to make a catch-up contribution). In figuring whether your tax bracket will drop after retirement, watch out for hidden taxes, such as Old Age Security and other items that are subject to "clawbacks" as income increases.

Although there is something to be said for this strategy of borrowing to contribute, it is not necessarily at the top of my list. Yet the advertisements put out by some banks would lead you to believe that it's a nobrainer. But much of the advertising focuses on your short term-position—leaving out the tail-end tax effects of the RRSPloan gambit, thus conveniently omitting the biggest downside of the strategy. The bottom line is that, while this may not be a bad idea if you can pay down your loan in the not-too-distant future, longer-term loans may not make much financial sense unless you are confident you can earn more on your investments than your interest charge. As this pretty well rules out interest- bearing investments, it means you're levering yourself up in the hope that your mutual fund and stock returns will defray your interest charges, and then some. But as we all know too readily, stock market investments have their risks – particularly if levered. By levering your RRSP nest egg on a long term basis, you're betting the farm.

Slash your source deductions

One rather unlikely source of cash could be the source deductions withheld on your paycheque. Many people regularly get tax refunds because of deductions such as support payments, carrying charges on investments, and so on. While this may give you a good feeling when you file your tax return, the truth is that you are really lending the government money—your money—on a largely interest-free basis. In fact, by the time you get your refund, Canada Revenue Agency could have had the use of your money for up to a year and a half— money that could come in handy this time of year, to pay for holiday spending, winter vacations and the like.

If you're in this situation, simply fill out Form T1213, which can be found on the Canada Revenue Agency website, and file it with the Client Services Division of your local Canada Revenue Agency Tax Services Office. If Canada Revenue Agency approves your request, they will notify you in writing, which will take four to eight weeks (note that the Canada Revenue Agency will most likely not approve your request if you owe tax or have a tax return that is overdue for filing). Once you receive written notification from the Canada Revenue Agency, present it to your employer, who should then reduce withholding accordingly. You usually have to file this request every year. However, if you have deductible support payments that are the same or greater for more than one year, you can make this request for two years.

Most tax offices are quite cooperative when it comes to this procedure. According to Canada Revenue Agency, there is no specific minimum amount below which they will not consider an application. (Occasionally, the personal exemptions on which your source deductions are partly based may change. If so, you should fill out Form TD1 with the revised exemptions and give it to your employer who will adjust your source deductions in accordance with the revised information—in this case, Canada Revenue Agency approval is not required.)

One item that may get you a source-deduction slash is an early RRSP contribution for 2016. Contributing early in the year also means your earnings will compound on a tax-sheltered basis sooner rather than later.

One word of warning, though. If your refund is based on something you don't want the feds looking at, you may want to think twice before you apply for a source-deduction slash: it is possible that your application could result in scrutiny of the items on which your claim is based. So if you are making aggressive claims, it may be best to leave well enough alone.

Consider an advance on your Inheritances

It's worth noting what you should do if you receive an advance on an inheritance as a gift rather than a loan, and you are married when this occurs. If this is the case, the advance should be documented so that the gift, and subsequent income earned on it, is not subject to a spousal claim in the event of marital difficulties.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Samantha Prasad
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions