Out of RRSP contribution room?


The Registered Retirement Savings Plan (RRSP) is probably the single best tax shelter available to Canadians. You can deduct your contributions from your income, and you are able to shelter your earnings from taxation for as long as they remain inside the plan.

But what do you do if you’ve filled it up and have no more contribution room? It’s a problem. But what a nice problem to have!

While it’s difficult to think of another savings vehicle quite as attractive as the RRSP, the good news is that there are other tax-advantaged savings options available to those who have already maxed-out.

Universal Life Insurance

Universal life insurance is perhaps best described as a life insurance plan built around a tax-sheltered, savings account. Every month, the base insurance premium is "billed" to this savings account. Any amount that remains in the account after this minimum charge has been paid can be invested however you choose, and the earnings accumulate tax-free for as long as they remain inside the policy.

Labour Sponsored Investment Funds

Labour-sponsored investment funds (LSIFs) offer tax credits to encourage Canadians to provide venture capital to smaller firms. Someone who makes the maximum annual investment of $5,000 will receive a generous $750 credit (15%) from the federal government. Depending on your place of residence, you could also receive another 15% credit from your provincial government, though Ontario recently announced plans to phase out its credit.

Mortgage Debt

Now that your RRSPs have been topped up, consider the benefits of making an additional mortgage payment. Most lenders will allow you to make prepayments to a maximum of 20% or 25% of the original loan, and the savings can be significant. For example, a $10,000 prepayment on a $150,000 mortgage at 5% with 20 years remaining would save you $15,399 in interest. There aren’t many other investments that can generate an immediate 150% after-tax return!

If you’d like to discuss these or any other tax shelter opportunities in greater detail, please do not hesitate to contact our office.