I finally got my T4 (yay!) and started doing my tax return. I’ll likely file with an accounting software I have access to but I started by playing around with H&R Block’s online tax software. Now I was interviewed a couple weeks ago about my RRSP and the CA that was also in the interview stated his knowledge on RRSP’s and TFSA’s. I have about $3,000 in RRSP contributions and my plan was to defer all of them till years when I am making more money. But, as I was playing around with my return I noticed that in claiming my RRSP deductions I would get $600 more back this year.
But then I think I’m being greedy.
For you see if I wait till I am in a higher income bracket I will get a larger return.
(taken from the CRA website)
Alberta currently has a tax rate of 10% so right now and so I’m being taxed about 25%. Which if I claimed my $3,000′s worth of credit I should decrease what I owe or increase what I get as a refund by $750. But, if I wait till I’m in the 39% bracket I’ll get back $1,170. (These numbers won’t be exact because of the progressive tax rate)
This would mean growing my money by 150%! That’s better than any index fund I could buy.
I know there is always the inflation argument but I really hope that by the time I’m making $135,000 our dollar hasn’t doubled. Then of course there is the argument – what if I never make $135,000. In my mind though it isn’t a question of if it is a question of when… but that’s cocky so I’ll say that if I don’t then I’ll still be in a higher income bracket than I am now and will get more of a return.
What would you do? Claim the deduction or wait?
How much do you think you will gross in 2014? If your goal for 2013 is $25,000, you’ll still be in the 15+10% tax bracket this year. But if you’re done school in December and start working full-time by say March, at $15,000 gross for 4 months, I’m going to assume you can gross $70,000 in 2014, putting you in at least the 22+10% tax bracket. Since you’re not starved for cash, I would consider at least postponing claiming the deduction until the 2014 tax year.
I contributed to RRSPs starting in my second year of university. Thanks to my co-op earnings, I started then maxing out my RRSP deduction limit based on my high school years of working and my first three co-op terms. (I never got around to maxing it out for my last two co-op terms because I moved to the States.) I’m really glad I deferred claiming the deduction because in my last year of university, my co-op income was high enough that I was pushed into the 22% federal tax bracket, which meant that my contributions saved me an extra $500+ in income taxes by waiting and in the meantime, they got to grow tax-free in my RRSP.
I’ll be in school for 4 months of 2014 and then trying to find work between May and September as my full-time job starts in October. So I’ll only be working 3 months full-time at the job that will become my career. But through careful estimation I guess I’ll make about 35000 in 2014 so I might defer it till 2015. Thanks for sharing!
So unfamiliar with the Canadian tax system. But I’d assess how realistic/how long it would take to reach that $135k bracket. The longer it takes, the more likely it is that tax laws will change/adjust by then anyways….if you guys are anything like us.
Good point! They have already changed when we can claim old age security so hopefully they don’t change anything else!