hi guys
If i contribute 6000 toward RRSP than how much tax deduction will i get?
Quote:
Originally posted by bren
hi guys
If i contribute 6000 toward RRSP than how much tax deduction will i get?
It depends on your Marginal Tax Rate. Higher the marginal tax rate, higher are the savings for contributions made to RRSP. Similarly, lower the marginal tax rate, lower savings through contribution to RRSP.
Marginal tax rate is the top rate of income tax that is charged to individuals on their last dollar of earnings. The rate also indicates how much tax you would save on each dollar of income that does not need to be reported on your tax return. For example, if your marginal tax rate is 40%, and you contribute $1,000 to your RRSP, you will save $400 in tax.
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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada
Location: carl sagan's universe
Posted on: 17-12-07 13:41:08
Quote:
Originally posted by bren
hi guys
If i contribute 6000 toward RRSP than how much tax deduction will i get?
It depends on a few factors.
The first question I ask people is how long you have been working in Canada? If they say they arrived and started work in 2007, then their tax deduction for this year is 0, so even if they contribute $6,000 they will get zero in tax returns.
Another pertinent situation is if the person arrived in July 2005 and started work in August 2006 and made $20,000 from Aug to Dec 2006, then even if the person contributes $6,000 his/her tax deductibility is 18% 0f $20,000 or $3,600, so even if he/she contributes $6,000 he/she is elible for only $3,600 deduction.
A simple question like yours does not give the person you wish to answer correctly enough info to give you an adequate reply.
I know the site claims you have been a member since 2005, but how long you have been working for in Canada, onecannot say, since it is also your first post.
Thank you pramodbhai and investor pro.
Quote:
Originally posted by Pramod Chopra
Quote:
Originally posted by bren
hi guys
If i contribute 6000 toward RRSP than how much tax deduction will i get?
It depends on your Marginal Tax Rate. Higher the marginal tax rate, higher are the savings for contributions made to RRSP. Similarly, lower the marginal tax rate, lower savings through contribution to RRSP.
Marginal tax rate is the top rate of income tax that is charged to individuals on their last dollar of earnings. The rate also indicates how much tax you would save on each dollar of income that does not need to be reported on your tax return. For example, if your marginal tax rate is 40%, and you contribute $1,000 to your RRSP, you will save $400 in tax.
Sorry pramodbhai, I am paraphrasing...
But, My income was 41k in 2007. So marginal tax rate would be 22% or 31%.
(I derived 31% this way: 22%fed. tax + 9.15% Provincial = 31% approx).
I bought 3400 RRSP. So, will I get refund 22% of 3400 ? or scene will be different.
Thanks
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એક જ ટીપામાં હો જાણે સાત સમંદર,
એવા ઝંઝાવાત હજુ હૈયાની અંદર
Quote:
Originally posted by love_n_peace
Sorry pramodbhai, I am paraphrasing...
But, My income was 41k in 2007. So marginal tax rate would be 22% or 31%.
(I derived 31% this way: 22%fed. tax + 9.15% Provincial = 31% approx).
I bought 3400 RRSP. So, will I get refund 22% of 3400 ? or scene will be different.
Thanks
You can use http://www.walterharder.ca/T1.html to find out.
Location: carl sagan's universe
Posted on: 01-02-08 09:16:10
Please read
https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20080131/RCESTNICK31
What Tim fails to note is that you should have the requisite deductible room on your NOA (Notice of Assessment)
If you do, you might want to squirrel away slightly more on your RRSP to save you the health tax as well as you seem mighty close.
THE CONCEPT
It's registered retirement savings plan season, and many Canadians will make a contribution to their RRSP before the Feb. 29 deadline. Good idea. But don't confuse the benefit of contributing to your RRSP with the benefit of claiming a deduction for that contribution. You see, you can contribute to your RRSP this year, but procrastinate on - or defer - claiming the deduction, or some part of it, to any future year.
Why do this? If claiming the deduction in a future year results in greater tax savings, then it could very well make sense. Here's the deal: The amount of tax you'll save from any deduction is equal to the amount you deduct, multiplied by your marginal tax rate. The lower your taxable income, the lower your marginal tax rate, and the lower your tax savings from claiming an RRSP deduction.
The bottom line?
It can make sense to claim enough of your RRSP deduction this year to bring your taxable income down to the next lowest tax bracket. But it may make sense to save the balance of your RRSP deduction until next year to claim it against higher-tax-rate dollars if possible.
THE EXAMPLE
Consider Janice. Janice lives in Ontario, and earned $42,178 in 2007. Janice plans to make a $10,000 contribution to her RRSP in the next month, which will entitle her to claim a $10,000 deduction on her 2007 tax return. This deduction will save her $2,813 in taxes in 2007.
As an aside, her marginal tax rate on income over $37,178 in 2007 is 31.15 per cent, so the first $5,000 of her RRSP deduction saves her tax at that rate. The balance of her RRSP deduction will save her less tax, because her marginal tax rate is lower once her taxable income falls below $37,178.
What if Janice were to instead claim the first $5,000 of her RRSP deduction on her 2007 tax return, but save the next $5,000 until next year? She'd save tax at 31.15 per cent on that first $5,000 deduction in 2007, resulting in tax savings of $1,558. Next year, assuming her marginal tax rate is identical (not likely, but it's close enough for our math here), she'd save $1,558 on the balance of the $5,000 deduction next year, for total tax savings of $3,115. Janice will save an additional $159 in Ontario Health Premiums (another tax) over the two years as well in this second option, for total tax savings of $3,274.
So, Option 1 is that Janice can claim the full deduction in 2007 and save $2,813 in taxes, or defer part of her deduction - Option 2 - and save a total of $3,274 over two years. The difference is $461. Even considering that some of the tax savings are deferred until next year, the present value of the overall benefit is $384 in today's dollars. Now, this isn't going to make Janice rich, but it's better in her hands than Canada Revenue's coffers.
The easiest way to make a decision about whether to defer your RRSP deduction is to use tax software to run the numbers. Your tax preparer should be able to help with this. Alternatively, you can do the math by hand if you get a copy of marginal tax rates for your province (which you can obtain from most chartered accountant firms, or at the back of my book, 101 Tax Secrets for Canadians).
