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moneysense.ca, 14/01/08
Your Turn: Boost Your CCTB by Contributing to Your RRSP
It is not widely known that the Canada Child Tax Benefit (CCTB) is based on a family’s net income i.e. income from all sources less deductions such as RRSP contributions, childcare expenses etc. If you are working on your 2007 taxes, enter the numbers from Line 236 of T1 General of your return and your spouse in this calculator to see if you are eligible for the CCTB. Don’t just assume that you won’t be eligible – you may be surprised to learn that only a small fraction of families won’t be eligible for this tax-free benefit. The following note is from reader D:
I thought I would pass on something interesting that I encountered while working on my 2007 tax return. I was playing with the RRSP contribution calculator in Ufile as well as the CTB calculator on the CRA website to determine CTB payments for next year for our two children. I found that if I max out my RRSP contributions for 2007 at $4,500, thereby decreasing my taxable net income by that amount, it will increase the CTB received by $15 per month, or $180 for the year. By my rough calculations, this is a 4% immediate return on investment on top of the other benefits of contributing to a RRSP. Just thought that I would pass this on as another positive associated with contributing to a RRSP and perhaps your readers might be interested in.
Thanks for your note D. If you have a financial tip you would like to share with our readers, please don’t hesitate to contact me. And if you haven’t done so already, don’t forget to enter your name in The RRSP Book giveaway.
moneysense.ca, 14/01/08
Thanks for that tip. With my spouse in school last year and an income of almost nil, reducing my income this RRSP season may work out for the best in my family, this is something I didn’t know or even think of.
Well, I’ve learned my one thing for the day, I’m going to bed.
You deserve an award for filing taxes so soon…
People should make sure to go back and test the prior three years – if you missed applying for CTB in error (usually because you either have not filed a return, your children aren’t all registered with CRA using form RC66, or your marital status has changed but doesn’t know (use form RC65).
If you missed child tax benefits for any of these years, send a letter explaining that you made an error. It may take a few months but CRA will almost always pay you retroactively if you missed a benefit due to an error.
Thanks, canadiancapitalist. It’s a very good strategy, which I’m already practicing for 3 years. Unfortunately, since I’m with a new employer, I “get” a very big Pension Adjustment (PA) each year, which decreases my max. RRSP contr./deduction limit. But I’ll always maximize it each year.
Hi Rob: Thanks for your comments. Would CRA pay the CTB retroactively only for the past 3 years? If I missed the child tax benefits since the child was born, how would it work?
Thank you so much for the message. I really appreciate your tip!
What is maximum family income to get CTB?
I would like to learn more about RRSPs’ and retirement.
Thanks,
Dave
Jennie, It’s pretty far up there. I’m not sure of the exact maximum, but if you use the calculator and put one person with a 100K salary with 2 kids and no disability (in NB) then your ‘benefit’ would be around 4 bucks.
Drop that to 70K and you’ll receive over 100 bucks a month.
I just want to thank CC, and D, for posting this awesome tip. I’m very seriously considering taking an RRSP loan this year since my spouse was in school last year I get to take the child care, she had almost no income. So for 2007 if I take out a descent sized loan after all my deductions I’ll be under the limit for the National Child Benefit Supplement monthly amount which is where the returns really spike. From my calculation the return would be nearly 10% plus the deduction from the RRSP deposit itself and any gains inside the RRSP.
With the math working the way it does for my family,this will probably be the only year we will be able to get these kinds of returns since for the 2008 year she will be back working full time again.
CC- typically CRA will go back three years with only a letter explainign the error.
Changes to your tax returns beyond a normal three year period require approval from the CRA “fairness committee”. Believe it or not, the CRA fairness committee is actually pretty fair about things, but it does involve an extra step and therefore about 3 more months to get resolution.
Although it is wordy, anyone condering a request beyond the three year period would be wise to spend the time reading the CRA guidelines on the matter which can be found at …
http://www.cra-arc.gc.ca/E/pub/tp/ic07-1/ic07-1-e.html#P251_34381
CRA can approve adjustments back as many as 10 years. I have been successful in getting this done for clients on more than a few occasions so it is definitely worth a try.
Good luck!
Oh yes! It works the opposite as well. Last year I decided to cash some RRSP money to pay down some debt. Therefore my income technically increased. The debt was gone but so was CCTB benefits for 2007! I don’t regret it but it is something to think about if you are considering. I should be back on track this year.
[...] below the threshold by making a RRSP contribution. Also, recall that families with children can boost their CCTB payments by making a RRSP contribution in any year. The RRSP deadline is March 1, 2010. This post was originally published on April 15, [...]
[...] It is true that withdrawals from a RRSP or RRIF may result in a reduction of income-tested benefits. But the flip side is often neglected. Contributions to a RRSP reduce one’s taxable income and increases income-tested benefits such as t…. [...]
RRSP withdrawals can reduce the Old Age Credit available to persons over 65 years of age. This is a good reason for using a TFSA for someone with an income under $40,000. The person in a higher tax bracket with a flucutating yearly income could save $5,000 in a TFSA and then transfer it to a RRSP at the appropriate time.