# 8 month leave of absence begining Jan 2016



## Tycho (Sep 27, 2014)

Hello all,

A very short introduction as this is my first post on these forums:

I've gone from struggling to get by most of my adult life to doing quite well for myself over the last 6 years or so, during that time my years of struggling have made me a good saver. I recently bought a house after saving up 20% for a DP, maxed out my TFSA, and have a decent start on my RRSPs. Now since my employer allows us to take a leave of absence for up to 12months I've decided that this is something I would like to take advantage of. So my tentative plan is to take about 8 months away from work to travel and snowboard while my family situation (no kids, yet) and age make that much more difficult proposition.

I have many questions, but I've decided to start with taxation as I feel there may be a strategy to that could help me as I'll have no income at all during the first 8 months of 2016, while in 2015 I'll be in a pretty hefty tax bracket my expected salary is going to be about $150k. I don't believe my employer offers any way to defer pay, so I'm wondering if there is some sort of registered account for which I can deposit money into for tax savings in 2015 (like an RRSP), but I can withdraw and then play the lower taxes on in 2016 when for 8 months or so I will have no income at all.

Does anybody have any advice for my particular scenario? I'm happy to share any more details which may help.

Thank you for taking the time to read.


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## ensanimal (Sep 28, 2014)

Couldn't you just continue with RRSP, and even "double dip" in a way to lower your 2015 tax bill and push some of that to 2016 at a lower rate.

Contribute in 2015. Make a withdrawal in Jan/Feb of 2016 since you would only claim the income on your 2016 return when your income should be much lower. You could then take some of that, re-contribute it before end of the first 60 days and claim that amount as a deduction on your 2015.


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## leslie (May 25, 2009)

This strategy is often recommended using an RRSP by the people who believe the RRSP's benefit/cost is from the difference in tax rates between contribution and withdrawal. But that is not the RRSP's main benefit. The main benefit is from the permanent sheltering of profits earned in the account. (watch the 2nd video at least of this series https://www.youtube.com/channel/UCYf70uCj5q4GRWYC0wVtdxg ) When you withdraw $$ early you give up all the future decades of profit-sheltering. That will almost always be a far greater cost than the 10% benefit from withdrawing at a one-lower tax bracket. 

All that assumes that you will save enough to use up all your RRSP contribution room. In order to replace a $150k salary you will have to make use that room. Especially if your available room has not been used (so growing) up till now. It is quite personal whether you think (a) you will in fact save enough to use up all the contribution room, and ( b) when you will use it up ((the income-sheltering benefits lost are lower if the lost room only makes a difference to your savings 20 years from now).

IMO for most people with higher incomes, the decision to destroy contribution room is like presuming defeat in the war to save enough for retirement.


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## Islenska (May 4, 2011)

No comment on the tax strategy , 

Just the idea is tremendous and you will be glad in later years to have done it when you could!

Best of luck!


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## Tycho (Sep 27, 2014)

Leslie, thank you for your reply, sorry for the delay in mine. I haven't had a chance to watch the video yet, but I most certainly will. 

So basically, if my understanding is correct, I could potentially put money in an RRSP (I've currently have about 70k of room) this year and the next, get the tax savings, then take it out as needed during my leave of absence in 2016 as needed but would pay the tax on it as income in 2016, likely at a lower rate. So there is certainly some savings to be had there, but at the expense of losing the contribution room I used that could potentially be making me tax free income over the years on the way to retirement.

If this is the case, perhaps I will try and do some math on the tax brackets to find something that works good for me without wasting all of my contribution room. I honestly would not be expecting to use all of that room over the next few years, but certainly want to save some of it. Is that a good idea, perhaps contribute just enough to slide down a couple tax brackets?


Islenska, thank you for the encouragement, this is certainly something that makes me a little nervous, but I do indeed think that it's a worth while life experience.


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## lb71 (Apr 3, 2009)

You may want to consider a leave of absense spread over two tax years instead of one. Under your current plan, you would be taxed on income of 150k in 2015 and 50k in 2016. If instead you spread the 8 months evenly between 2015 and 2016 you would be taxed on income of $100k in each year. You would get some savings from those high marginal rates and surtaxes (if they exist in Alberta) above 100k. Play around with some tax return software to see what kind of tax savings you can generate. Of course, this would assume you are open to moving the LOA.


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## OhGreatGuru (May 24, 2009)

Tycho said:


> .... Now since my employer allows us to take a leave of absence for up to 12months I've decided that this is something I would like to take advantage of. .... I don't believe my employer offers any way to defer pay, ....


Talk to your employer again. If your employer allows this kind of leave, it cannot be a new problem, and I should be surprised if they do not have some way to income-average it. But you may have to agree to a cut in pay in 2015 to do it.


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## Cal (Jun 17, 2009)

^ Same. I would be surprised if they were not willing/able to defer some of your 2015 pay until Jan. 1st of the following year.


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## NotJustDreaming (Oct 20, 2013)

I'm doing this myself. Though I've got three kids already. We want to travel while they still want to hang out with us. I'm taking a year starting January 2017. This was an arbitrary date when I picked it two years ago. Looking back, it would have been better to choose it to start at the beginning or end of a school year, both for taxes and ease of reintegration.

I'm finishing the second year of a 20% pay cut that will continue for two more years. Then I'll receive the 80% deferred pay in the fifth year.

My understanding of this is that it is a CRA program that employers can participate in. So I'm with the others... Ask them again. 

From a tax standpoint I also agree with above. If there is no specific reason why you chose January, I'd divide the sabbatical months into two tax years. 

If I had to self fund it outside of the deferred salary program, I'd do the usual TFSA and RRSP top up for the preceding years. And then would consider a withdrawl from my RRSP in your low 2016 tax year (so January to September makes just as much sense as April to December for sabbatical time) whether I needed the cash or not, so long as it is less than my expected retirement income.

I'm really looking forward to 2017. It's awesome fun planning tentative destinations already. The kids, 13, 12 and seven talk about something related to it almost daily even though it's still two years out. And I've become a pretty sophisticated travel hacker since I started researching ways to reduce travel costs. In the last 15 months since I stared as a points hound, we've earned hundreds of thousands of points for dozens of free hotel nights and multiple long haul air trips for all of us. After PF it's my new hobby.

I think it's great you're planning time off for travel but I'm envious that yours is more imminent than mine😃


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## Plugging Along (Jan 3, 2011)

^question... I have been thinking about something like this too. Are you pulling out your three kids out of school for a whole year? I just wanted to understand this a little more.


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## NotJustDreaming (Oct 20, 2013)

Hey Plugging Along,

Yes we're pulling them out of school. I've read a lot about the unschooling approach to this as I'm not cut out for homeschooling on the way. In a nutshell, unschooling is learning informally just by doing... Picking stuff up on the way by visiting museums and exploring historical sites, exposure to a foreign location, having the kids help plan itineraries and budgets based on researching and reporting back on a destination. Some math and chemistry might have to be done by registering for an online course (or by gulp me). But overall it's easily achievable. And many others have done it before us.

I'm hoping this trip turns into a multi year thing but who knows.


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## Plugging Along (Jan 3, 2011)

That is very interesting. I am actually familiar with I schooling and think it can be very cool. 

Are you planning on putting the kids back in to regular school after?


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## NotJustDreaming (Oct 20, 2013)

I'd for sure re-enroll them in school when we stay put. I'm pretty sure I don't have the patience and other stuff it takes for formal instruction.


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## Tycho (Sep 27, 2014)

Sorry for seemingly abandoning this thread I started; I replied several days ago, but for some reason it still hasn't posted, I hope this time it works.

Thanks for the replies everybody and encouragement, this is obliviously both exciting and scary at the same time. I have second thoughts daily! 

I'll check with work about the deferred pay, but I don't think that is an option after searching our HR information. I don't think this is something that is exactly encouraged, and is unfortunately not guaranteed, so I may not even be allowed to do it if the situation is not ideal.

Stretching it across 2 years instead of beginning it in January is something that I considered, but the timing isn't quite as good for the activities I want to do, and places I want to see; still on the table though as nothing is set in stone. I'm a pretty loose traveler, the type that doesn't always decide what to do until I wake up! Part of the excitement and adventure for me I guess, who wants appointments and schedules when you're on vacation!

From what I'm hearing for you all I think I might use a bit of RRSP room for this, I understand I will be losing that as contribution room, but I have a ton of room at the moment. I'm guessing there is a way to optimize what I contribute; is there an online calculator for this sort of thing?


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## getliquid (Mar 2, 2014)

your work let you leave for 8 month is awesome! we can do leave with income averaging for up to 12 weeks, thinking of taking may/june/july and go to Asian and Australia with the kids as well.


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## Connie Merrow (Sep 9, 2014)

*Helped*

A big thank you for telling this. I really helped by your article. Thank you very much.


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## Tycho (Sep 27, 2014)

Sorry if it looks like I've ignored this thread, I've replied a couple times but it didn't post; saying waiting for moderation.


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