# No income but RRSP room



## Eder (Feb 16, 2011)

I have $78,000 room left to contribute to my RRSP left over from a long time ago, I've had no T4 income for 12 years and doubt I ever will again. Any creative ways to burn this up to lower perhaps capital gain costs? Does it make sense to generate 150k capital gains & offset the taxable portion by using my RRSP then RIFF it out later?
Any comments?


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## fireseeker (Jul 24, 2017)

Shifting assets from non-reg to an RRSP normally works for two reasons: 1) the probability of withdrawing it at a lower tax rate than the MTR upon deposit; and 2) the value of the lengthy tax deferral.
It seems likely that neither will apply here.

If you have no T4 income now, it is hard to imagine that your future tax rate will be lower than it is today.

As for tax deferral, you can also defer taxes indefinitely by simply not selling the holdings with capital gains.


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## PabloPenguino (Dec 10, 2019)

If you're in a low income bracket then you may be better leaving the RRSP alone. The deduction won't provide much benefit. If most of your return from those investments will be from capital gains, then moving them into a RRSP will cause the entire amount to be taxable upon withdrawal, where only 50% of your capital gain would be taxable outside of the RRSP.


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## Eclectic12 (Oct 20, 2010)

fireseeker said:


> ... If you have no T4 income now, it is hard to imagine that your future tax rate will be lower than it is today.
> 
> As for tax deferral, you can also defer taxes indefinitely by simply not selling the holdings with capital gains.


I may be missing something ... but it seems limiting to consider only T4 income and the future tax rate.

Where there is a sizeable spike in taxable income - it may well be beneficial to the RRSP to smooth out the income spike by spreading it over a series of years.

The indefinite capital gains tax deferral is fine while things are good - should one need to sell sizeable capital gains to preserve capital, the timing may no longer be at one's choice (ex. Nortel).



I wouldn't go looking to generate capital gains but I'd keep the RRSP in mind should one need to generate them for other reasons.


Cheers


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> Where there is a sizeable spike in taxable income - it may well be beneficial to the RRSP to smooth out the income spike by spreading it over a series of years.
> 
> The indefinite capital gains tax deferral is fine while things are good - should one need to sell sizeable capital gains to preserve capital, the timing may no longer be at one's choice (ex. Nortel).


I agree that it might be an advantage to incur the CG tax under circumstances you control.

Eder is sitting on some unrealized CG in his non-registered. Would it not be useful for him to incur some of those CGs now? This would add capital gains income to his taxes, resulting in taxes payable.

Then he could make an RRSP contribution up to the point that the taxes payable declines to $0. Through this process he'd be able to keep some of those CGs free and clear, which he can invest again with a cost base reset. He's then deferring some of those taxes for later.

Is the problem here that his future tax rate will be similar to the current rate?


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## PabloPenguino (Dec 10, 2019)

james4beach said:


> Is the problem here that his future tax rate will be similar to the current rate?


That is the assumption I made with the point "I've had no T4 income for 12 years and doubt I ever will again." If the OP is roughly in the same income bracket between now and the future, then OP would be better off selling tranches of the position each year to stay in a lower income bracket. If the entire position must be sold at once, offsetting the gains with RRSP contributions and then doing small withdrawals each year may work well. It would depend on how the numbers shake out.


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## Eder (Feb 16, 2011)

I guess its not that easy to figure out. If say perhaps Elon Musk makes cellular data very cheap it may be to my advantage to cash in maybe 200k of my telecom capital gains then use the RRSP to soften the blow. At this time I'm under 6 figures in dividends each year in my taxable account and have not yet started to RIFF. I may have to hire some guy in suspenders and hair gel to figure this all out.


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## cainvest (May 1, 2013)

Eder said:


> I guess its not that easy to figure out. If say perhaps Elon Musk makes cellular data very cheap it may be to my advantage to cash in maybe 200k of my telecom capital gains then use the RRSP to soften the blow. At this time I'm under 6 figures in dividends each year in my taxable account and have not yet started to RIFF. I may have to hire some guy in suspenders and hair gel to figure this all out.


Hard to tell with out throwing out some hard numbers, it could work out.
With a tax program and a spreadsheet you could ball park it pretty good yourself I'd think.


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## Retiredguy (Jul 24, 2013)

I have a similar issue but only 50K of unused room. My present income is from CPP, DBP, DIVS and the occasional CG. I looked at it a couple of years ago and didn't see any meaningful way to make it work. I don't recall the numbers now but if there was any advantage it was minimal.

A couple of additional things for me were; 1). I don't have any RRSP'S/RRIF's now so why complicate things. 2). My income is increasing each year in retirement, so in theory, putting the future RRIF payout on the top end, it will get taxed in whatever marginal bracket it falls into. Presently that is 40% plus for straight income and about 20% for divs. 3). Upon my death any RRIF/RRSP remaining would incur maximum marginal tax rate because of other accumulated CG's etc. Likewise, if I go before my wife and she is then taxed yearly on our combined assets.


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## Eder (Feb 16, 2011)

cainvest said:


> Hard to tell with out throwing out some hard numbers, it could work out.


I'm a bit hesitant...usually very negative reactions when others did it.


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## AltaRed (Jun 8, 2009)

Eder said:


> I'm a bit hesitant...usually very negative reactions when others did it.


I wouldn't be disclosing real numbers either. I think that unless the tax value of an ACB reset (recognizing 50% inclusion rate) is likely to be highly beneficial, the PV of higher taxes from RRIF withdrawals seems to be a headwind. I had a similar situation from RRSP room that developed the year after I retired, and the math never seemed to be assured. So I basically let that contribution room vaporize.


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## cainvest (May 1, 2013)

Eder said:


> I'm a bit hesitant...usually very negative reactions when others did it.


Uh ... sorry, didn't mean to suggest putting real numbers here but rather just for your own calculations.


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## Eder (Feb 16, 2011)

AltaRed said:


> So I basically let that contribution room vaporize.


I didn't know I would lose the contribution room over time.


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## AltaRed (Jun 8, 2009)

Eder said:


> I didn't know I would lose the contribution room over time.


Once you* have to RRIF, there is no more RRSP and contribution room is gone.

* or that of a spouse who also has to RRIF


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## fireseeker (Jul 24, 2017)

Eder said:


> I guess its not that easy to figure out. If say perhaps Elon Musk makes cellular data very cheap it may be to my advantage to cash in maybe 200k of my telecom capital gains then use the RRSP to soften the blow. At this time I'm under 6 figures in dividends each year in my taxable account and have not yet started to RIFF. I may have to hire some guy in suspenders and hair gel to figure this all out.


I am going to make a guess: When you say "I'm under 6 figures in dividends each year in my taxable account" I take that to mean you are close to six figures. Closer to $100K in dividends anyway, than, say, $50K.

You have a RRSP/RRIF of undisclosed size, which you haven't started to draw on. Presumably you also have some CPP and OAS, either started or yet to come.

Once those last three streams of income begin, I suspect you will be well over $100K in annual income. The dividend tax credit will help, but it is hard to imagine how adding more money to the RRSP is going to benefit you.

I say that for two reasons:
1) Both you and J4B have mooted reducing your income next year to nil. This means you would be deferring tax from lowest possible tax bracket. 
2) In your non-reg account, capital gains will be taxed with a 50% inclusion rate. (Speculating on changes to that is a separate issue.) Putting that money in your RRSP means that eventually it will be 100% taxed.

Given your already substantial income, my guess is that future RSP withdrawals are likely to attract substantial tax -- probably more than the tax deferral is worth in present value terms.

This all a guess, of course. It depends on the actual mix of your incomes and future incomes.

Two final thoughts:
One, if you do decide to trigger a big cap gain for investment reasons, causing your income to balloon one year, then by all means reconsider using the RRSP room. At least in that case the tax rate going in and coming out figures to be similar.
Two, if your income one year creeps up into higher tax brackets for whatever reason, it may make sense to contribute to the RRSP -- but probably not to take your income to zero. Getting down to the first tax bracket (~$45K) should probably be the limit.


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## Eder (Feb 16, 2011)

Good advice...makes sense. Thanks for the insight.


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