# RRSP contribution



## mohdali4 (Mar 10, 2016)

I am doing 3 part time jobs. In one job I am working as an employee and received T4 statement. in remaining 2 jobs I am receiving cash payment, and as per my understanding, I have to show the cash income under small business. My yearly income is between 25k-30k. I have 3 kids under the age of 18. My spouse is not working

I just opened an spousal RRSP account 
Is it worth to contribute in her RRSP account. I read somewhere that RRSP contrubution is only benefit you when you have higher yearly income, usually more than 40-45K.


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## OptsyEagle (Nov 29, 2009)

Great work ethic. Nice to see.

The decision on whether you want to use a spousal RRSP or a personal RRSP is a decision that is based on what expected incomes the both of you will have in retirement, not the incomes you have right now. Your current income decides WHO the contributor should be. That being said, you should definitely be the contributor. Once you have decided on that, I would attempt to get the two plans, personal and spousal RRSP, to equal each other so that in retirement your incomes will be split evenly. This will garner the best tax situation when you are both retired.

The above advice was for RRSPs. I have not done a detailed analysis but it seems to me that with your income situation, you may not pay any or very much tax at all. The 1st $23,000 you make will be tax free, since you get a personal exemption of around $11,300 and will get a spousal credit of the same amount for your wife. I don't have any children so I can't say if their is anymore tax credits but my point is you may not pay much in the line of income taxes. 

With this being the case, you might want to look at a TFSA (tax free savings account) as opposed to an RRSP. An RRSP tends to serve you well when you are in a high tax bracket. In that case you get a large tax deduction, leading to a large refund of taxes that you paid. You need this because in retirement the RRSP income will be taxable to you. If you don't get a large refund or any refund at all, because your income is so low, you will find that the tax benefits tend to disappear. 

In retirement you will prefer to have your savings in a TFSA as opposed to an RRSP, simply because your money from the TFSA will be tax free and the RRSP will be taxable. You will almost certainly give back any tax savings you might get today, with an RRSP, when you take the money back out later in retirement.

I suspect you may be trying to ensure that you don't owe any taxes when you file your 2016 tax return or at least owe a lot less. Keep in mind, that in your tax bracket you would need to put at least $5 in the RRSP to eliminate $1 of tax...and as I said, you will probably pay that $1 in tax back to the government when you eventually use that money.

I would look into a TFSA, but keep in mind a TFSA will do nothing to reduce any taxes you might owe, now or in the future.


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## FI40 (Apr 6, 2015)

I thought you just had to show cash income as "Other Income" on your personal tax return, but I am not confident about that and I'll let others comment on it. 

In your case I'd say definitely use a TFSA, not an RRSP. If your wife will always have no income, maybe it makes sense to use a spousal and contribute less than the basic personal amount (around 11k) each year and then remove it the following year, effectively dropping your taxable income by that amount since she will pay no tax. However, not sure what impact that would have, if any, on any govt benefits you may be receiving, so look into that too.

If you ever expect to earn more money, I'd say in general you should wait to use an RRSP until then; that's where they really work in your favour. A TFSA is always good if you use it for long term investing, and is much simpler.


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## CalgaryPotato (Mar 7, 2015)

Wait, you are putting your under the table cash payments on your tax return? Good for you, but I think most people take cash payments, so they don't have to pay tax...

Either way though, with 30K income and 4 dependents I doubt you'll pay any tax, so definitely don't do any RRSP contributions. You should have 11K worth of contribution room per year in your TFSA between you and your wife. Fill that up instead.

Actually I have to ask, how do you do it? Having money left over to invest on that kind of income with a family of 5? Again, good for you but I can't imagine.


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## OhGreatGuru (May 24, 2009)

FI40 said:


> I thought you just had to show cash income as "Other Income" on your personal tax return, but I am not confident about that and I'll let others comment on it.
> 
> ....


It should probably be Line 104 - Other Employment Income, not Line 130 - Other Income. This would provide him the option of making CPP contributions. Reporting as business income is a more complicated accounting exercise, and he has to look at whether he has sufficient business-related expenses to make it worthwhile.


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## Eclectic12 (Oct 20, 2010)

mohdali4 said:


> I am doing 3 part time jobs. In one job I am working as an employee and received T4 statement. in remaining 2 jobs I am receiving cash payment, and as per my understanding, I have to show the cash income under small business ...


Question is for the other two jobs ... are you an employee or a contractor?
http://www.taxtips.ca/personaltax/employees/employeevscontractor.htm

If you are an employee, I am surprised they are not providing a T4 form, like the other job. It is also strange to be advised to report employee income under "small business" as my understanding it that is for a business owner or self-employed contractor.

It looks like where you are an employee and don't have a T4 form, the income is reported on line 104.
http://www.cra-arc.gc.ca/tx/ndvdls/...ng/rprtng-ncm/lns101-170/104/ntrprtd-eng.html


If you are a self-employed contractor then there are likely tax breaks you can claim. You just have to make sure you meet CRA rules as in the past, some companies classed what was really an employee as a self-employed contractor.





FI40 said:


> mohdali4 said:
> 
> 
> > ... I just opened an spousal RRSP account ... Is it worth to contribute in her RRSP account. I read somewhere that RRSP contrubution is only benefit you when you have higher yearly income, usually more than 40-45K.
> ...


There are some assumptions to figure out before having a good idea of whether it would work.

Putting into the spousal RRSP then withdrawing while your wife has no income (assuming the changes to the gov't benefits are okay). Looking at the 2017 Ontario tax rates available at this link http://www.taxtips.ca/taxrates/on.htm, you'd be in the bottom tax level at 20.05% (other province tax rates are also available at the Tax Tips web site, if you live in a different province).

For a withdrawal from the spousal RRSP to have a tax advantage, she would have to withdraw a small enough amount to avoid any taxes being charged. Otherwise, the tax rate would likely be the same, where being able to use the tax refund would be the only benefit. If by the time she withdraws, tax rates are higher (or other income bumps up her income), it may not work out to be a lower rate.

As for the "contribution to the spousal RRSP then withdraw next year" - that won't work. The full withdrawal amount will be attributed back to you so that you have to report the withdrawal on your tax return. For the withdrawal $$$ to be reported on her income tax, no contributions can be made by either of you to the spousal RRSP for the current plus the two preceeding calendar years.

http://gailvazoxlade.com/blog/archives/4563
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/wthdrwls/spsl-eng.html


So like others, I'd say use the TFSA first ... especially if you think you will be earning a higher income in the future. The RRSP contribution room is carried forward indefinitely until one has to wind up the RRSP at age 71, so there's lots of time to use it later.


Cheers

*PS*

It won't help for this year but going forward, if you want to reduce the taxes owing, you might end up better off by making a charitable contribution. The credit for the first $200 is 15% then for everything else, the credit is 29% (i.e. higher than the tax rate you are likely paying).

If you want to see how it works and are comfortable with computers, you can download/install the tax software from this link ... http://www.studiotax.com/en/
Once the numbers that won't change are entered (ex. T4 income, other two job income etc.), you can plug in some numbers to see what happens to the final tax numbers.


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## mohdali4 (Mar 10, 2016)

Thanks for all your comments. I am getting 50% of my income in cash. So I don't think I should hide the same.

We are planning to buy the condo in near future, so I am convinced if I will show cash income in my returns it will might help getting mortgage in future. I am also willing to do CPP contribution for cash income, to get some benefit after retirement.


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