Ladies and gentlemen, welcome to RRSP Season.
What you need to know
RRSP season begins January 1 and lasts for the first 60 days of the year. During this period, one is able to make RRSP contributions to retroactively reduce the previous year’s income thereby reducing their tax bill.
Sounds like fun right? It is! If you’re thinking of purchasing community bonds, it may be worth purchasing ones that are RRSP eligible in the first 60 days of the year.
The CRA allows some community bonds, like CSI community bonds, to be RRSP eligible. However getting a bank to allow it can be the hard part. If a community bond is RRSP eligible and a bank will allow the bond to be purchased, your community bond will count as a contribution to your RRSP and can, therefore, either help reduce your current year’s tax bill or last year’s! It’s nice to have the option.
In addition, community bonds generally pay a fairly high interest, usually 5% – 7%. Normally, this interest would be taxable at your marginal tax rate outside the RRSP, providing even more incentive to hold bonds in an RRSP.
Tips on purchasing your community bond
1. Speak to a financial professional to understand the risk and rewards of community bonds and how they can play a role in your overall investment asset mix.
2. Make sure the community bonds that you wish to purchase are RRSP Eligible.
3. Open a Self-Directed RRSP to purchase a bond. Confirm with your financial institution that you are able to purchase the specific bond you wish to buy.
4. Purchase the bond within first 60 days of year for an option to lower last year’s tax bill.
5. If you already hold a community bond outside your RRSP, ask your financial institution if you are able to transfer the community bond inside, even after you’ve purchased.
Shannon Lee Simmons is a financial consultant, speaker, media personality, financial journalist and social change advocate. She founded Primary Financial and The New School Of Finance.