RRSP and TFSA 101

RRSP (Registered Retirement Savings Plan)

You must have “earned income” to contribute to an RRSP. To start building RRSP contribution room, you have to file an income tax return — even if you don’t owe any tax. Your notice of assessment will tell you how much money you can put into your RRSP each year.

While the funds in an RRSP are created by the government to motivate people to put away money for retirement, CRA does allow withdrawals from your RRSP at any time. However, when money is withdrawn from your RRSP, it is considered part of your taxable income for that year and the trustee of your plan is required to withhold tax and remit it to CRA on your behalf. When you prepare your annual tax return, the tax withheld is reported as tax already paid. It is also important to note that the contribution room used is lost forever when withdrawn

TFSA (Tax-Free Savings Account)

A TFSA is a type of registered savings plan in which any investment income you earn is tax-free. The amount inside your TFSA can be withdrawn, also tax-free, unlike an RRSP.

The annual TFSA contribution (dollar) limit for 2020 is $6,000. If you don’t contribute the full $6,000, this leaves unused contribution room that accumulates annually (as it does with an RRSP). This means you can contribute more than the annual TFSA dollar limit each year, as long as you didn’t contribute the maximum in past years. To see how much unused contribution room you may have, go to the following CRA services: My Account; MyCRA; Represent a Client; and Tax Information Phone Services.

The TFSA is flexible. In many cases, funds are available in next to no time, and you don’t pay taxes on those withdrawals (like you would on a withdrawal from an RRSP). Withdrawn funds will also result in additional contribution room the following year.

Westbow Capital Real Estate Trust

Westbow Capital is a Real Estate Trust with a strategy that includes buying, holding, and renting properties in Western Canada. Our management team founded Westbow Construction, which has 40+ years of experience as a builder and developer of residential homes, so have a great understanding of the residential real estate market. With a strong understanding of the Western Canadian real estate market and numerous connections in the industry, the management team can make strategic decisions about what cities and provinces to buy and hold rental properties. Each province has different economic conditions, so the management team will leverage their expertise to use the best strategy in the various provinces. Westbow Group of Companies currently has 11 developments in two provinces and understands the markets to buy, sell, and rent homes in Western Canada.