The RRSP Deadline for 2010 was March 1st, so if you haven’t already contributed, you can’t for last year. But this year is a whole other story….
For business owners, an RRSP is your only pension fund. There is no large corporation ensuring you have funds at your retirement. You are that corporation and RRSP contributions are essential to self-employed individuals unless you want to rely only on the Canadian government to look after you in your retirement. Although there has been great debate in recent months as to whether or not RRSP’s are as beneficial as they were years ago, RRSP isn’t just about tax reduction, it is also about financial planning. Planning for your retirement.
For self employed individuals or business owners, the RRSP also allows you to smooth out your income and defer some income into a future year. For example, if you contributed money to your RRSP in 2010 and withdraw it in this year, the tax consequence of that contribution is that you reduced your taxable income for 2010 and will increase your taxable income for 2011. Therefore, if you earned $100,000 in 2010 and are expecting that your 2011 income will only be $60,000, this strategy allows you to smooth out your income stream and defer some income from 2010 to 2011 when you are in a lower tax bracket.
I would be interested to hear from business owners as to whether they use their RRSP’s as an income deferral tool, as a tax reduction strategy, or whether you have an opinion on the effectiveness of RRSP’s.
Copyright: olegdudko / 123RF Stock Photo
Tax Tip #2 – RRSP’s – A Business Owner’s Best Friend
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Juliet Aurora is the CEO of AIS Solutions and Co-Founder of Kninja Knetwork. Through both of these businesses she fulfills her mission to Educate and Empower those around her. In 2017, her firm was named Intuit's Global Firm of the Future, the first time the title has ever been awarded to any firm outside of the US. She has also has been named as one of the Top 50 Women in Accounting, one of the Top 50 Cloud Accountants and one of the Top 10 Canadian Influencers in the Bookkeeping Industry. Her passion for education is channeled through the Intuit Trainer Writer Network, hosting Kninja Knowledge Webinars and most recently, developing a Cloud Accounting Course for the next generation of accounting professionals.
I think its great. At least it is an opportunity to help for the future! You have to be committed though and continue to put that money in, no matter if the income is low from one year to the next