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Originally posted by JRF

Hello People,

- Started working in Canada from April 2006.
- never worked in Canada before, so never filed taxes.
- Paying regular canadian taxes as an employee since then.
- Looking to buy a house around Mid 2007.
- never contributed in RRSP.
- Spouse is a student, not employed.
- I wish to use the RRSP under the first time home buyer provision. I've never filed taxes and never contributed to RRSP.

Now the questions is.

1. Can I start contributing to RRSP right away or wait till I file the taxes to know the limit ?


2. Even if I start contributing now (subject to the answer to Question #1), Can I withdraw immediately after 90 days to buy the house or I got to wait 90 days after I come to know my RRSP contribution limit through tax filing?


3. Irrespective of my above two questions, What are my chances to use RRSP to benefit for buying a house in year 2007.


I briefly discussed this with the FA that I know of. He said, I can't contribute till I file taxes and even then I need to keep the investment for 90 days.

Thanks.

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

For those who wish to invest in Europe vide mutual funds

http://www.morningstar.ca/globalhome/industry/fundtable.asp?quick=finder&currview=2&Sponsor_ID=*&Fund_Type=6F&RRSP=Y&load_struct=*&total_asset_value=*&Expense_Ratio=*&Rating_3y=*&sort1=R5y&findord=&top=50&Submit2=Show+Funds&nodata=0

Here are the top 50 Canadian Equity funds based on 5 year returns if you wish to invest in the Canadian stock market thru mutual funds.

http://www.morningstar.ca/globalhome/industry/fundtable.asp?quick=finder&currview=2&Sponsor_ID=*&Fund_Type=66&RRSP=Y&load_struct=*&total_asset_value=*&Expense_Ratio=*&Rating_3y=*&sort1=R5y&findord=&top=50&Submit2=Show+Funds&nodata=0

RRSP info

http://www.morningstar.ca/globalhome/Industry/News.asp?articleid=ArticleID129200715121

Your 2006-2007 Morningstar Guide to RRSPs
by June Yee | 30 Jan 07 | E-mail Article to a Friend

Higher contribution limits, greater investment choices make this program more popular than ever.


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It's been almost 50 years since Ottawa introduced registered retirement savings plans (RRSPs), and Canadians are now pouring more money than ever into these accounts. The latest data from Statistics Canada indicate that the number of tax filers contributing to RRSPs in 2005 reached its highest level in four years. Meanwhile, contributions of $30.6 billion, up 6.2% from 2004, represented the third consecutive year-by-year increase and the highest annual total in RRSP history.

What's behind this apparent increased commitment to saving for our retirement years? Although the incentives to put money into an RRSP haven't changed -- contributions generate upfront tax deductions and grow sheltered from tax as long as they remain in the plan -- contributors may now take advantage of higher contribution limits and greater investment choices.

The RRSP landscape widened, for example, with the removal of foreign property restrictions in registered plans announced in the 2005 federal budget. At the same time, investment-grade gold and silver bullion, coins and bars were added to the list of RRSP-qualified investments.

RRSP Season is here again
Although the financial services industry's marketing blitz aimed at winning your RRSP dollars takes place over the same few weeks each year, in reality you may contribute to an RRSP at any time. In order to get the tax deduction for the previous year however, you must contribute in the first 60 days of the year. Contributions in this period may be allocated to the previous tax year or the current one, or you may choose to split the contribution between the two years.

For the 2006 tax year the contribution deadline is March 1, 2007.

In addition, the 2005 budget also laid out a schedule for increasing the maximum RRSP contribution levels. That ceiling was frozen at $13,500 from 1998 to 2002, and rose by $1,000 for each of the following three tax years.

For 2006, you may contribute 18% of your income earned in 2005, up to a maximum of $18,000. The annual maximum contribution in dollar terms will continue to rise by $1,000 each year until it reaches $22,000 for the 2010 tax year. Starting in 2011, it will be indexed to growth in the average national wage.

Any unused contribution room you've accumulated since 1991 -- when the carry-forward rule was introduced -- may also be added to new contribution room for the current year, and any pension adjustments (PAs) will reduce the contribution limit. (PAs reflect contributions to an employer-sponsored pension plan.)

If the prescribed limit is still less than the contribution you want to make, bear in mind that Ottawa tolerates RRSP overcontributions of up to $2,000 over your lifetime. While you don't get a tax deduction for the overcontributed amount, it does get the same advantage of tax sheltering as all your RRSP holdings. Go above the $2,000 margin of error, however, and you'll pay a penalty of 1% of the excess amount every month until it is removed from the plan.

The good news is, you don't have to work out your contribution limit if you file your tax returns regularly and on time: your RRSP contribution room -- including any qualifying room carried forward from previous years -- appears on the Notice of Assessment of your previous year's tax return.

While some Canadians are building their nest eggs, others are using their RRSPs to fund current lifestyle needs. According to study results released in January by a major bank and RRSP provider, 40% of Canadians have made an average of three withdrawals from their RRSPs ahead of schedule.

This can have significant tax consequences for plan holders since withdrawals from an RRSP, other than money taken out under two government-sanctioned programs, are generally subject to withholding taxes and will also be included in your income for that year.

The exceptions are withdrawals made under the Home Buyers Plan (HBP) and the Lifelong Learning Plan (LLP). Introduced in 1992, the HBP permits untaxed withdrawals of up to $20,000 from your RRSP to buy or build your first home. The amount must be repaid within 15 years at a rate of at least 1/15 of the total each year. Repayments begin in the second year after the money is taken out and if you miss the repayment for a given year, the amount will be included in your income for that year.

Meanwhile, the LLP, which was introduced in the 1998 federal budget, allows access to as much as $20,000 from your RRSP to pay educational costs. There's a calendar year limit of $10,000 and withdrawals may be made over four consecutive years. Similar to the HBP, these amounts are not subject to tax when withdrawn, and they won't be taxed as long as they are repaid to the RRSP in 10 years or less after you finish your studies. Unlike the HBP, however, you may participate in the LLP more than once in your lifetime, provided the amount you withdrew previously has been repaid fully.

It's important to note that when you make an RRSP withdrawal that doesn't fall under these two exceptions, the contribution room that was used when you made the original RRSP contributions is lost forever. Only your current or future earned income can create new contribution room. This can be significant for people hoping to maximize their RRSPs.

More recently, a change to the tax treatment of pension income could affect the RRSP strategies of older Canadians. In an October 2006 announcement meant to lessen the impact on seniors of the new tax on income trusts, federal Finance Minister Jim Flaherty increased the pension tax credit from $1,000 to $2,000 beginning with the 2007 tax year. That means it might be more worthwhile than ever to convert part of your RRSP to a registered retirement income fund (RRIF) in order to create income that qualifies for this credit.


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June Yee is a researcher, writer and editor who has been covering investment funds for 15 years. She is a co-author of the managed funds sections of the Canadian Securities Course, and has authored or co-authored articles for numerous media and research organizations, including the Toronto Star, National Post, 50Plus magazine and BellCharts Inc. She is a founding member of the Canadian Investment Funds Standards Committee.

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Hi Friends,

I have noted down some genreal RRSP questions, i receive as a personal banker, and tried to answer them in simple terms.

8. What happens if i take money out of the RRSP account?
Ans. You will pay a \"Witholding Tax\" to the CRA and the amount will count as income for your next year's taxes.

For Example: If you withdraw $5000, 10% i.e., $500 will be deducted and you will get $4500, then you will have to pay tax on $4500 when you file your taxes.

Also, please refer to the RRSP section at CRA website> http://www.cra.gc.ca" rel="nofollow">LINK


Hope this helps you take advantage of tax benefits available to all Canadian residents, if you have questions - please ask here.

Sincerely,

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Originally posted by blabber

Quote:

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Hi Friends,

I have noted down some general RRSP questions, i receive as a personal banker, and tried to answer them in simple terms.

8. What happens if i take money out of the RRSP account?
Ans. You will pay a \"Withholding Tax\" to the CRA and the amount will count as income for your next year's taxes.

For Example: If you withdraw $5000, 10% i.e., $500 will be deducted and you will get $4500, then you will have to pay tax on $4500 when you file your taxes.

Also, please refer to the RRSP section at CRA website> http://www.cra.gc.ca" rel="nofollow">LINK


Hope this helps you take advantage of tax benefits available to all Canadian residents, if you have questions - please ask here.

Sincerely,

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I have a question regarding the point 8) :
The way I understand it $5000 will be added to your net income for Tax purposes .
and $500 which was withheld will be refunded if you file your taxes and you have no other income ...

Please correct me if I am wrong ...

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Pramod Chopra
Senior Mortgage Consultant
Mortgage Alliance Company of Canada

I am plannin to save through RRSP but i have one question that don't you think its good to save some money every month in your bank account instead of putting money in RRSP? Becaues when you save money on RRSP they don't even pay interest and even if they do.......how much ? 1-2% ?

Because when we save something for retirement and get cut on tax but when we withdraw money - (doesn't matter at the age of 69 or before) we have to pay tax on total amount and govt count rest of the money in next yr income and we pay tax again.

Somehow i am not very much impressed with all this RESP and RRSP...can you guide me or correct me if my calculation is wrong somewhere ? I have gone through all posting but still i am not getting ans. that should I save some money every month in my bank account or start putting something in RESP or RRSP...

Anyway your details were really helpful to make decision. thanks in advance.