- What activities in your account generate tax slips
- When you receive receipts for RRSP contributions
- What you need to know about your TFSA contribution limit
There's lots to think about and prepare for during tax season. If you're taking advantage of the tax-sheltering benefits of a registered account, such as a TFSA or RRSP, your burden at tax time may be a little lighter. However, there are still a few things to be aware of with taxes and registered accounts.
Generally, a tax slip may be issued for a registered account if any of these activities occur, depending on the type of account:
- Account income earned for U.S. persons, from U.S. sources
Here's how this applies to each type of registered account at Questrade.
TFSA - Tax-Free Savings Account
While you don't receive a tax deduction when you make a contribution to your TFSA, you can withdraw money from it at any time without being taxed. And your earnings within your TFSA, such as capital gains, are tax-free as well. So, at tax time you won't receive tax slips for your TFSA.
There's one exception: if you're a U.S. person holding a TFSA, you'll receive a 1099-DIV and/or a 1099-INT for dividends and/or interest earned in the account from U.S.-sourced investments.
One other thing to be aware of with your TFSA is your yearly contribution limit. Your TFSA limit is the new yearly contribution amount ($6,000 for 2021), plus any previously unused contributions, plus any withdrawals made in previous years. If you over-contribute to your TFSA, you'll be taxed at a rate of 1% of the excess amount for each month that excess stays in your account.
So, for example, suppose your total contribution limit for 2021 is $8,000 and you contribute $10,000 during the year. For each month the excess amount ($2,000) stays in your TFSA, you'll be taxed at a rate of 1% (or $20).
To make sure you're staying within your limit, log in to the CRA website to view your balance. Note that TFSA contributions and withdrawals made during a tax year may not show in your CRA account until after February of the following year.
RRSP - Registered Retirement Savings Plan
The first 60 days of the year (January and February) are typically known in Canada as RRSP season—your opportunity to contribute to your RRSP so you can reduce your taxable income for the previous year and possibly receive a tax refund at the end of tax time. Of course, it can be a good idea to contribute to your RRSP regularly throughout the year.
When you contribute to your RRSP, you receive a contribution receipt as follows:
- For contributions made from January 1 to March 1, 2021, you'll receive a receipt about 3 weeks after each contribution is deposited to your account
- For contributions made in the previous year (March 5–December 31, 2020), you'll receive one consolidated receipt in mid-January 2021
While contributions made in the first 60 days of 2021 can be claimed (deducted) for the 2020 or 2021 tax year—or carried forward for future years—they must be entered as a contribution on your 2020 tax return. For more information, visit the CRA website.
Similar to TFSAs, if you over-contribute to your RRSP you'll be taxed at a rate of 1% of the excess amount for each month the excess remains in your account. You can deposit up to 18% of your earned income for the previous year (up to a maximum of $27,230 for 2020).
You can withdraw from an RRSP without a tax penalty if you're using the funds for a Home Buyer's Plan or Lifelong Learning Plan. Otherwise, if you withdraw from your RRSP during the year, you'll be required to pay tax on the amount you withdraw and you'll receive one of the following tax slips:
- T4RSP and RL-2 (Quebec residents)
- NR4 (non-residents of Canada)
SRRSP - Spousal Registered Retirement Savings Plan
A Spousal RRSP is a retirement savings account in which the account holder (the annuitant) can receive contributions from their spouse or common-law partner (the contributor) on their own behalf. This has some great tax benefits; for example, a higher-income spouse can make contributions to a Spousal RRSP, earn a tax deduction, and build up their spouse's retirement savings.
If you want to open a Spousal RRSP at Questrade that your partner would contribute to on your behalf, there are a few important things to keep in mind:
- The account must be in your name (as the annuitant) and not in the name of your partner (as the contributor)
- To set up your partner as the contributor, when creating the account, please be sure to select Spousal contributions (under RSP contribution preference) during the first step of the application. Then, on the next page under Participants, make sure your spouse's information is filled out correctly.)
When your partner makes a contribution to your Spousal RRSP, a receipt will be issued in their name, with your name below. The contribution receipt will still appear in your account (as the annuitant) on the Reports > Tax slips page.
What's also important to note is the name on the receipt can't be changed once it is issued, so make sure you've set up your Spousal RRSP correctly before your partner makes a contribution.
Otherwise, what you can expect to receive at tax time for a Spousal RRSP is the same as for a regular RRSP.
RESP - Registered Education Savings Plan
An RESP is an educational savings account in which the account holder (or subscriber) contributes to a child's (beneficiary's) future post-secondary education. The account is tax-sheltered until the funds are withdrawn by the beneficiary. The money in an RESP consists of the following:
- Post-Secondary Education Payments (PSE) - the amount of after-tax dollars the subscriber has contributed
- Education Assistance Payment (EAP) - the portion of the RESP that consists of federal and provincial grants and investment income earned from dividends, capital gains, and interest
For contributions made to an RESP, the subscriber does not receive a contribution receipt.
However, for a U.S. person holding an RESP, they receive a 1099-DIV and/or a 1099-INT for dividends and/or interest earned in the account from U.S.-sourced investments.
For withdrawals from an RESP:
- Withdrawals by the subscriber (of the PSE portion) are tax-free since the contributions have been made with after-tax dollars
- Withdrawals by the child/beneficiary (of the EAP portion) when they enroll in a qualifying post-secondary program are taxed (at their lower income bracket) and they receive the following tax slip:
- T4A and RL-1 (Quebec residents)
- NR4 (non-residents of Canada)
If the subscriber wishes to withdraw an EAP portion they may do so with formal written agreement from all parties. (The tax slip will still be in the name of the beneficiary.) If the beneficiary wishes to withdraw a PSE portion, they may do so and a tax slip will not be issued.
RRIF - Registered Retirement Income Fund
For RRIFs and LIFs (Life Income Funds), you're required to make a minimum withdrawal annually. There's no withholding tax on this minimum amount, unless you're a non-resident of Canada at the time of withdrawal. Also, you can withdraw more than the minimum, with withholding taxes applied depending on the withdrawal amount. (A predetermined maximum applies for withdrawals from LIFs and other locked-in funds, but not for RRIFs.) For more information, see Tax considerations for your registered account.
For withdrawals from your RRIF during the tax year, you'll receive the following, depending on your residency:
- T4RIF and RL-2 (Quebec residents)
- NR4 (non-residents of Canada)
Want more information about taxes and your registered accounts? Please visit Tax considerations for your registered account.
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The information in this blog is for information purposes only and should not be used or construed as financial or investment advice by any individual. Information obtained from third parties is believed to be reliable, but no representations or warranty, expressed or implied is made by Questrade, Inc., its affiliates or any other person to its accuracy.