Investments

In Canada, investments are regulated by multiple regulatory bodies. This depends on the type of investment you have. Every province or territory has its securities regulator. The regulators oversee investments and offer unbiased and interactive resources to help you get started with investing.

Deciding if you want to invest

If you’re considering investing, you may want to know how investments work. There are multiple elements to consider before you decide. This includes:

• Your financial situation
• Your financial goals
• How long you want to invest for
• Your risk tolerance

Find your securities regulator’s website to get you started with investing.

Types of investments

Many types of investments are available to you such as RRSP, TFSA, RESP, FHSA, Non-Reg etc. They may not all meet your needs based on your circumstances.

How taxes apply to investments

You may need to pay taxes on the money you make from your investments. There are different tax rules for different types of investment accounts.

Think about your financial goals. Saving and investing can help you reach your financial goals. Writing goals down is a good idea.

To figure out what savings and investments are right for you:

• Identify and prioritize your goals, such as saving for retirement or a down payment for a house
• Set a dollar amount for each goal
• Set a timeframe to reach your goals

As you get older, your financial goals will change. Review your savings and investing plans from time to time.

Keep in mind you’re generally better off paying down debt first. This is because the interest you pay on debt could be more than what you can earn by investing.

Set a date to reach your goals - Consulting with us can be helpful. Call Us, we are ready to advise you with our knowledge & experience.

Types of investments

Registered Retirement Savings Plan (RRSP)

An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. When you contribute money to an RRSP, your funds are "tax-advantaged", meaning that they’re exempt from being taxed in the year you make the contribution. Any investment income earned from investments held within the RRSP can then grow tax-deferred, as long as the money remains within the RRSP, until it’s withdrawn.

RRSP contributions are tax-deductible, it is $1 to $1 Deduction from your income, meaning that they can be deducted on your current year tax return, with any contribution you make, it helps potentially to reduce the total amount of taxes you pay.

At what age am I eligible to contribute to an RRSP?

There’s no minimum age required to open an RRSP. However, some financial institutions may require customers to be the age of majority. You can set up and contribute to an RRSP up to the end of the year you turn 71 as long as you are a Canadian resident, have earned income, and file a tax return.

What’s the best age to open an RRSP?

This can vary from person to person. Generally, however, the earlier, the better! It’s never too early to start investing for retirement. In fact, investing early can potentially help you reap the benefits of tax-deferred compound interest depending on the type of investment you hold.

What are the benefits of investing in an RRSP?

• Tax-Deferred Savings: Any investment income earned on investments held within the plan is tax-deferred, as long as it remains in your RRSP.
• Tax Deductions: Your RRSP contributions are tax-deductible and may help to reduce the total amount of income tax you pay.
• Optimizing Deductions: You can carry forward your unused RRSP contribution room from years of lower income and use it in future years when your income may be higher. This can help you benefit from tax savings when you’re in a higher tax bracket.
• Income Splitting: If you earn more than your spouse or common-law partner, contributing to a spousal RRSP may help reduce the total amount of tax you pay.
• Financing your First Home or Education: You can withdraw money from your RRSP without being immediately taxed to pay for your first home or education, under the Home Buyers’ Plan or Lifelong Learning Plan (LLP) as a loan which you have to pay back in certain years or you will get taxed for the contribution amount for that year.

When can I withdraw my money?

You can make a withdrawal from your RRSP any time as long as your funds are not in a locked-in plan, but withdrawals will generally be included in your income and subject to tax in the year of withdrawal.

Usually, a portion of the withdrawal will be withheld and remitted to the government as a prepayment of the income tax you will owe for the year.

Depending on the amount of taxable income you’re earning in the year of withdrawal, it may be beneficial to put off making withdrawals until a year in which your taxable income will be lower.

In addition, unlike withdrawals from a tax-free savings account (TFSA), withdrawals from an RRSP are not added back to your contribution room in the year following the withdrawal.

What is the maximum RRSP contribution?

The amount of money you can put into an RRSP each year depends on a couple of factors. The first is income history. You can contribute up to 18% of the income you reported on your prior year’s taxes, with a maximum cap. There are exceptions, of course. If you have not maxed out contributions in previous years, you are allowed to catch up. So if you have $10,000 of extra contribution space that you didn’t use in previous tax years, you can take advantage of that this year.

Case Study -

Let’s say you make $70,000 a year and you decide to contribute the maximum allowable amount into your RRSP. Assuming you made $70,000 the previous year and are up to date on your contributions, the most you can put in is 18%, or $12,600. When tax day comes around, the CRA will treat you as though you earned just $57,400. Now, this money is tax-deferred, not tax-free. You will eventually have to pay taxes when you withdraw your money years down the line, but by the time you do so, you’ll be retired — focused more on grandkids and bus tours than climbing a corporate ladder. Your income will almost certainly be lower, which means your tax rate should be lower, too.

Tax Free Savings Account (TFSA)

What is a TFSA

The TFSA program began in 2009. It is a way for individuals who are 18 years of age or older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime.

Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.

TFSA contribution room

Your TFSA contribution room is the maximum amount that you can contribute to your TFSA.

Only contributions made under a valid SIN are accepted as TFSA contributions.

If you were 18 or older in 2009, your TFSA contribution room grows each year even if you do not file an income tax and benefit return or open a TFSA.

If you turned 18 after 2009, your TFSA contribution room starts in the year you turned 18 and your TFSA contribution room accumulates every year after that year.

Investment income earned by, and changes in the value of your TFSA investments will not affect your TFSA contribution room for current or future years.

Best is to check with CRA my account website to get exact limit for particular year, as the TFSA annual room limit will be indexed to inflation and rounded to the nearest $500 as well.

Case Study -

Brayden was eager to open his TFSA, but he didn’t turn 18 until December 21, 2022. On January 4, 2023, he opened a TFSA and contributed $12,500 ($6,000 for 2022 plus $6,500 for 2023 – the maximum TFSA dollar limits for those years). On the advice of his broker, he had opened a self‑directed TFSA and invested in stocks that increased in value. By the end of 2023, the value in Brayden’s TFSA had increased to $12,800.

Brayden was worried that for 2024, he would only be able to contribute $6,700 (the TFSA dollar limit for 2024 less the $300 increase in value in his TFSA through 2023). Neither the earnings produced in the account nor the increase in its value will reduce the TFSA contribution room in the following year, so Brayden can contribute up to $7,000 in 2024 to his TFSA.

Registered Education Savings Plans (RESP)

The Registered Education Savings Plan (RESP) is a long-term savings plan to help people save for a child's education after high school, including trade schools, CEGEPs, colleges, universities, and apprenticeship programs. An adult can also open an RESP for themselves.

When you open an RESP, you can ask your financial institution (the promoter) to apply for benefits like the Canada Learning Bond (CLB) and the Canada Education Savings Grant (CESG). If the child is eligible, these benefits will be received in the RESP to help with the cost of the child's education. Eligible expenses can include tuition, books, tools, transportation, and rent. British Columbia and Quebec also offer provincial benefits.

If the child is eligible, they can receive the following in the RESP:

• The Canada Learning Bond (CLB) can provide up to a lifetime maximum of $2,000
• The Canada Education Savings Grant (CESG) can provide up to a lifetime maximum of $7,200

CESG eligibility

The CESG is available until the end of the calendar year that a child turns 17. A contribution must be made to the RESP to receive the CESG.

To be eligible for the CESG, the child must:

• Be a resident of Canada
• Have a Social Insurance Number (SIN)
• Be named as a beneficiary in an RESP
• Be 17 years old or younger

Use the calendar year to determine:

• CESG eligibility
• The amount of contributions made
• The CESG room earned and used in the last year

There are eligibility restrictions for children who are 16 or 17 years old.

Taking money out of an RESP

Money in a Registered Education Savings Plan (RESP) can come from many sources:

• Contributions from the subscriber and/or others
• Benefits received, like the Canada Learning Bond (CLB), Canada Education Savings Grant (CESG), and/or provincial benefits
• Interest accumulated on the money in the RESP

Because of these different sources of money in an RESP, there are different ways to withdraw.

Educational Assistance Payments (EAPs) include money from benefits and accumulated interest. EAPs are considered income for the beneficiary and are taxed when taken from the RESP. However, beneficiaries may not have much income during their studies, so it is possible that the beneficiary pays little to no tax when receiving an EAP.

A withdrawal of contributions can be requested by the RESP subscriber. The contributions can be taken out of the RESP tax-free and returned to the subscriber. The subscriber may choose to give these funds to the beneficiary. For example, a subscriber could request a withdrawal of contributions if they have no longer received any benefits in their RESP.

If interest in the RESP is not used by the beneficiary through an EAP, accumulated interest can be paid out on its own. This is called an Accumulated Income Payment (AIP) and is usually paid to the subscriber. It is taxed at the regular income tax rate of the subscriber, plus an additional 20% (or 12% for subscribers residing in Quebec).

How to use the RESP to pay for education

You can use the money in the RESP to pay for education right away or keep it for future education. To take money out of the RESP to pay for education, the subscriber asks the RESP promoter for an EAP. The beneficiary can use the EAP money to pay for expenses like tuition, books, tools, transportation, and rent.

To receive an EAP and pay for education:

• The beneficiary must enrol in full- or part-time studies at an eligible school (in Canada or abroad). Programs must meet the minimum weeks of study and hours per week to be eligible
• The subscriber must request the EAP from the RESP promoter
• The beneficiary must provide the RESP promoter with proof of enrolment

First Home Savings Account (FHSA)

Work towards your goal of buying your first home with a First Home Savings Account (FHSA). The FHSA is a new registered plan started in 2023, that can help you save for your first home tax-free. If you’re at least 18 (and no less than the age of majority in your province), have a Social Insurance Number (SIN) and have not owned a home where you lived this year or at any time in the preceding four calendar years, you may be eligible to open an FHSA.

Reasons to Invest in an FHSA:

• Use it to save up to $40,000 for your first home
• Contribute tax-free for up to 15 years
• Unused contribution room can be carried over to the next year, up to a maximum of $8,000
• Potentially reduce your tax bill and carry forward undeducted contributions indefinitely
• Pay no taxes on any investment earnings

Complements the Home Buyers’ Plan (HBP)

Make a tax-free withdrawal at any time to purchase a qualifying home.