# RRSP Duductions and Low income credits



## young_gun (Jan 20, 2010)

Hello and thank you in advance for any help you can provide. I've googled this, but found no help.

This passed year, I made $22K. Over the last number of years, I have been putting away money into my RRSP and TFSA. I didn't use much of the RRSP deductions and have a bit saved up to use later. My question is if I apply a few thousand in RRSP deduction to this $22K, I get back about 32% due to low income benefits such as working income tax benefit, provincial tax credits, etc. 

However, if I save this deduction and use it next year, my marginal tax rate will be 29.7% to 32.5% depending on my final income.

Am I understanding this correctly? Does anyone have any recommendations?

Thank you for the help.

Tax rate source: http://www.taxtips.ca/taxrates/bc.htm


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## OptsyEagle (Nov 29, 2009)

I don't know what province you live in but at $22K of annual income there is no province where your marginal rate would be as high as 29%. In Ontario your marginal tax rate would be around 21%.


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## young_gun (Jan 20, 2010)

Thank you for the reply. The $22k is an apprenticeship salary. Once I'm done the apprenticeship, my income will be much higher and a higher marginal tax rate.

I can either get 32% back now, or wait until next year and get 29% back. It just seems weird that I'm getting more money back with less income and want to make sure I'm not missing anything.

Thank you again for the help.


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## Charlie (May 20, 2011)

i suspect you're in a one of the odd brackets where income is affecting refundable credits and other lower income benefits. So you're probably right in your calculations. I'd run a scenario with your current and future income just to ball park it (i think you've done that). And remember that on a $5K contribution the difference at 2% is only $100 so maybe just don't overthink it too much? 

Do watch how your tuition credits and carryforwards apply, so you're not losing those. Sometimes tax planning at low income bubble levels can be more complex than for higher earners.


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## young_gun (Jan 20, 2010)

Thank you for the help.


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## OptsyEagle (Nov 29, 2009)

Still surprised that you can run a scenario where ALL YOU CHANGE is the income and with $22K you are getting a larger amount of tax savings, from the same RRSP contribution, then when you input a MUCH HIGHER income.

Doesn't make a lot of sense. Are you sure you are just changing the income and RRSP contribution lines to determine your numbers?


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## gardner (Feb 13, 2014)

Personally, I would save the RRSP contribution room for when I have a higher marginal tax rate. Especially if I had room in my TFSA to keep the money working tax-free in the mean time.


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## MoneyGal (Apr 24, 2009)

OptsyEagle said:


> Still surprised that you can run a scenario where ALL YOU CHANGE is the income and with $22K you are getting a larger amount of tax savings, from the same RRSP contribution, then when you input a MUCH HIGHER income.
> 
> Doesn't make a lot of sense. Are you sure you are just changing the income and RRSP contribution lines to determine your numbers?


It does make sense. He isn't getting "more tax" back; he's getting more in refundable tax credits. Tax arbitrage is complex at low incomes. See http://www.cdhowe.org/pdf/ebrief_114.pdf


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