RRSPs are a great way to move yourself to a lower tax bracket and lower your tax rates. In addition, RRSP contributions earn income tax free. You can contribute your full RRSP deduction limit plus an additional $2,000 without penalty. You also have the first sixty days of 2002 to contribute to your RRSP in order to receive a deduction on your 2001 personal income tax return.
It may be advantageous not to deduct all of your 2001 RRSP contribution on your 2001 personal income tax return. Say, for instance, you contributed $6,000 to your RRSP in 2001. Your 2001 deduction limit was $10,000 and you had taxable income of $34,754. A deduction of only $4,000 reduces your taxable income to the lowest tax bracket. It may be better to only claim $4,000 as your 2001 RRSP deduction and carry forward the remaining $2,000. Any additional RRSP deduction in 2001 will be claimed at low tax rates.
Click here for a complete list of Tax Tips.
Copyright © 2002 Intuit Canada Limited