# Avoiding taxes...with RRSP loan



## PF_Enthusiast (Jan 21, 2011)

I need some input on whether or not an RRSP loan is ideal in my situation. I will be meeting with my accountant in early January to get exact numbers on deductions, tac credits, etc. 

I'll try to keep this simple and straight to the point. 

I currently work as a salaried employee as well as a commissioned salesperson for another company. 

Salaried Job: $35,000 (employer had appropriate taxes withdrawn each pay period)
Commissioned Sales: $31,000 (I'm responsible for "saving" to pay CRA upon filing my taxes)

During the past year, I have purchased and renovated a home and spent a fair amount on educational courses. I don't really have the funds easily accessible (only about $6k liquid as an emergency fund) to pay the taxes on the $31,000 commssions I earned during the year, so I was thinking on taking out an RRSP loan at prime rate through my bank. I have LOTS of carry forward contribution room! I'm going to guess my expenses that I'm able to claim are going to be about $12,000. That leaves me with $19,000 of income to pay taxes on! I'm wondering if it would be in my best interest to get an RRSP loan for $19,000 (providing all these numbers are exact) so I don't owe CRA a bunch of money or should I do my best to come up with the money owed for taxes and learn my lesson for next year.


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## Four Pillars (Apr 5, 2009)

Avoiding "owed taxes" is not the right reason for contributing to an RRSP.

I would meet with the accountant and figure out how much you are going to owe before deciding on anything. Perhaps just getting a loan to pay the taxes might be the best solution.


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## Liquid Independence (Oct 6, 2011)

That's one way to pay less taxes this year. Keep in mind you are actually deferring the money to be taxed at a later date, which is usually a good thing for most people since they are at a lower tax bracket when they retire and take the money out, but that's not true for everyone. 

Hypothetically if your marginal tax bracket was 36.95%, and if you were going to contribute to your RRSP anyway, (which I would if I made that much money,) then an RRSP loan would be my preferred choice. Especially when you can borrow at 3%. But it depends on where you'll be investing that money too of course and your risk profile.


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## MoneyGal (Apr 24, 2009)

You may have many deductible expenses against the commission income. Here is the CRA guide for commissioned employees:

http://www.cra-arc.gc.ca/E/pub/tg/t4044/t4044-10e.pdf

You can also use this income tax estimator to get a very rough idea of how much tax you might owe:

http://www.walterharder.ca/T1.asp

You could "guesstimate" your total commission income after deductible expenses (as you have done). If you use that calculator, you will get an estimated total owing - subtract out the income tax you've already paid (use your payslips or last year's T4 if your salary was similar). 

When I enter your info as single / in Ontario / $31K employment income / $19K self-employment income I get total tax payable of $10,400. You would need to reduce this amount by the taxes you've already paid - which is about $4100 (given the same assumptions) in Ontario - meaning you would owe about $6300, or pretty much what you've set aside as an emergency fund. 

You should go ahead and do your own math but you know what? You'd be further ahead to pay the tax owing and set up an RRSP contribution every month starting in 2012. 

In your tax bracket, to eliminate the tax you owe, you'd need to make an RRSP contribution that's so large, you'd be stuck playing catch-up with the loan forever.


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