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Ontario Medical Review
Jan. 26, 2022
Preya Singh-Cushnie
Director, OMA Insurance  

Set yourself up for financial success 

Prepare for RRSP season and save on taxes

Important deadline

The deadline to receive a 2021 tax deduction on RRSP contributions into the Advantages Retirement Plan™ is Feb. 28.

RRSP season is a time when many Canadians review their finances to get a better sense of where they stand when it comes to their tax-saving vehicles, as well as saving for retirement. The Advantages Retirement Plan™, brought to you by OMA Insurance, is dedicated to helping you save for retirement through its easy-to-use, award-winning online savings program. Designed for OMA members and their spouses or common-law partners, the plan provides a suite of educational tools to help members prepare for RRSP season and plan their financial goals.

What is a Registered Retirement Savings Plan?

An RRSP is a registered retirement savings plan designed to help you save for your retirement. It may help you reduce the taxes you pay annually on your gross income because contributions made to an RRSP are usually tax exempt while it remains in the plan. RRSPs let you save for your retirement by deferring taxes on the savings within the product. More of your money can stay invested, allowing your savings to grow faster, especially over time. An RRSP can help you lower your taxable income by allowing you to deduct RRSP contributions made each year from your taxable income. When you are ready to retire and your income decreases, withdrawals made at retirement are taxed at a lower rate than they would be today.  

What is a Tax-Free Savings Account?

A TFSA is a registered savings account that allows Canadians aged 18 years and older to set money aside tax-free throughout their lifetime. Your contributions to a TFSA are not tax-deductible for income tax purposes like an RRSP because TFSA contributions are made with after-tax dollars. Unlike an RRSP, you can withdraw funds from your TFSA at any time without tax penalty. This makes it a flexible option to save for retirement or other large purchases. Learn more about TFSAs from the Canada Revenue Agency.

The differences between an RRSP and a TFSA

RRSPs and TFSAs provide tax advantages and savings opportunities, however, there are differences between them. Both help Canadians save for long-term life and financial goals, and both have limits to how much you can contribute each year. 

The biggest difference between RRSPs and TFSAs is that the money you put into a TFSA is income that you’ve already paid tax on and therefore, you cannot deduct TFSA contributions from current income. This means you are not taxed on withdrawals from TFSAs. TFSA contribution room also does not depend on your income (e.g., salary and/or dividends), whereas money put into an RRSP comes from pre-tax income, so these contributions grow tax-free while they’re in a plan. 

Finding the right balance

As an incorporated physician, you may want to receive compensation in the form of a salary or mix of both salary and dividends to take full advantage of the tax deferral available through RRSPs. 

Another consideration is that physicians have a unique compensation trajectory because income usually starts after medical school and rapidly climbs as you establish a practice. This can mean that physicians may benefit from starting to save in a TFSA account, followed by saving additional funds in an RRSP as earnings. Not sure how to allocate between the two savings vehicles? The Advantages Retirement Plan™ has a default allocation based on what may be the most tax-efficient for most physicians. 

If you have a spouse or common law partner, they can prepare for RRSP season by enrolling in the Advantages Retirement Plan™. The amount that each of you can contribute to an RRSP and TFSA is set by the Income Tax Act, and in the case of RRSP, your previous year’s earned income. Visit MyAccount, a secure online portal provided by the Canadian Revenue Agency, to view your personal income tax and benefit details online.

Maximize your RRSP contribution room

RRSP season is a great time to reflect on your financial retirement goals and make the most of your RRSP contribution room. Each year, the CRA sets a limit unique to you on the amount of contribution each eligible taxpayer can make. 

It considers this year’s deduction limit and any unused contribution room from previous years. Contributions made into an RRSP are tax deductions, which reduce the amount of income tax you will pay. To create RRSP room, incorporated physicians need to take some of their income as salary rather than as dividends. Earning a salary is necessary to create RRSP contribution room. Every year, the maximum possible RRSP contribution increases, as does the corresponding salary amount required to make the maximum contribution to an RRSP.

The deadline to contribute to an RRSP is March 1. Contributions into the Advantages Retirement Plan™ must be received by Feb. 28 to receive a tax deduction.

Automate your contributions

With the Advantages Retirement Plan™, you can automate your contributions and make lump sum contributions, should you decide to contribute more during the first 60 days of the 2022 tax season. The sooner you start to contribute, the greater the impact it will have on the value of your portfolio in the long run due to the power of compounding interest. 

Find out more

Want to learn more about saving with RRSPs and TFSAs? The Advantages Retirement Plan™ website has educational videos, webinars, podcasts and articles to help you learn more about saving and investing for retirement, or you can talk to an OMA Insurance advisor to find out more about the plan and how to enrol.