RRSPs and Bonuses

It’s hard to believe that another RRSP season is almost gone. RRSP seasons aren’t as frantic as they used to be but there is still a lot going on. I was reminded this week that an employer can pay an amount directly to an employee’s personal RRSP. If an employer believes the employee has sufficient RRSP contribution room, an employer can contribute some of an employee’s compensation directly to the employee’s RRSP. This bypasses the withholding tax that would have been applied had it been paid out as compensation. Consider an employee that received a $15,000 bonus and is in the 50% tax-bracket. If this had been paid out, $7,500 would be the after-tax bonus. If the employee deposits this amount in their RRSP, they’d get a $3,750 refund. If the full $15,000 was paid directly to employee’s RRSP, the amount will bypass withholding taxes the full amount will be invested. But you can’t have your cake and eat it too. Because the withholding taxes were bypassed, this is essentially the tax refund in advance. The employee could not deduct the contribution and expect a refund. If you have clients that could take advantage of this, it means larger RRSP contributions. Be sure to check with the carrier about the procedure they use to facilitate such a transaction. I look forward to your comments. And, I hope to see you at our next Money Monday, Feb 26th. Take care, Scott Edgington Director of Wealth Qualified Financial Services Scott.edgington@qfscanada.com 416-786-4140