RRSPs as a business owner?
RRSPs have been a well-known tax savings tool for quite some time. For younger investors, they can often be a second thought, though; as there are now three accounts to consider:
the FHSA (First Home Savings Account), created in 2023
the TFSA (Tax Free Savings Account), created in 2009
the RRSP (Registered Retirement Savings Plan) (around since 1957!)
Having all these options provides opportunities for choosing the best fit for each specific person… but, can also create some overwhelm, and need for professional advice.
Let’s walk through some RRSP planning considerations if you own a business, as the account can be of great benefit for you to fund (yes, even if you have a corporation)
You are still a couple years away from incorporating; and experiencing very big swings in income.
We’ve had some success using RRSPs with clients in this situation; using their available room to offset those high income years, before their corporation controls the income. After incorporating, they were able to slow down on RRSP contributions, lower their personal taxable income via a planned salary and dividend strategy, and leave the RRSP funds to grow tax-deferred.
What is great here, is that the RRSPs can be withdrawn on their terms; as other sources of income are controlled via the corporation. This means full control over tax brackets and actual taxes payable.
Your incorporated business makes good money, you are married, and have lots of RRSP room
Consider whether Spousal RRSPs may benefit yours and your spouse’s financial situation; they help to shift retirement assets into your spouse’s name, by using your own RRSP contribution room. And you don’t need to wait to “retirement age” to withdraw the funds into your spouse’s name, so long as you wait at least 3 years from the time of contribution.
You own rental property in your personal name, and plan to sell soon
As an incorporated business owner, this scenario may call for slowing down on RRSP contributions now; to leave some room to take a large RRSP deduction to offset capital gains tax on the disposition of your rental. You have an opportunity to only withdraw what is needed from your corporation in that year, and as such, control your personal taxable income much more than if you did not have the corporate structure in place.
I have personally implemented this strategy in this current year, and would be happy to share more on this if you find it helpful.
If you find yourself debating how to use RRSPs in your specific situation, if you should use your TFSA room first, or if you should invest money in your corporation instead; please reach out, so we can make an action plan together.