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[OP]
Newbie
Dec 12, 2017
46 posts
Quebec

RRSP question

Question about tax payments when the RRSP payment is made after December 31st and before March 1st (or the deadline date).
Say I receive a lump sum of $5,000 on January 15 2020 and I want to contribute this to my 2019 RRSP.
This reduces my income in 2019 by $5000.
However, when I get to the end of 2020, will they report this $5,000 as income for 2020 meaning I have to pay tax on it instead the year after?
25 replies
Newbie
Oct 18, 2019
53 posts
49 upvotes
qwertyjjj wrote: Question about tax payments when the RRSP payment is made after December 31st and before March 1st (or the deadline date).
Say I receive a lump sum of $5,000 on January 15 2020 and I want to contribute this to my 2019 RRSP.
This reduces my income in 2019 by $5000.
However, when I get to the end of 2020, will they report this $5,000 as income for 2020 meaning I have to pay tax on it instead the year after?
If you're paid on Jan 15 2020 it should appear on your T4 for 2020 and count towards your income for 2020.
[OP]
Newbie
Dec 12, 2017
46 posts
Quebec
Samiracle wrote: If you're paid on Jan 15 2020 it should appear on your T4 for 2020 and count towards your income for 2020.
So I can use it to reduce my income in 2019 by contributing to a RRSP but then I just pay the tax again in 2020? What's the point in contributing at all?
Deal Fanatic
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Jan 31, 2006
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Toronto
qwertyjjj wrote: So I can use it to reduce my income in 2019 by contributing to a RRSP but then I just pay the tax again in 2020? What's the point in contributing at all?
The $5000 count as 2020 income.

You can contribute to your RRSP, but the $5000 have nothing to do with your 2019 tax reduction even if you used as your RRSP contribution.

RRSP is used to reduce your tax (or tax defer to a later date) and get back 25% of what you contribution.
Newbie
Apr 2, 2013
60 posts
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Fredericton
qwertyjjj wrote: So I can use it to reduce my income in 2019 by contributing to a RRSP but then I just pay the tax again in 2020? What's the point in contributing at all?
One example would be if you were anticipating making lower income in 2020 it would be more beneficial to put that deduction towards your 2019 taxes vs waiting until your 2020 taxes.
Member
Jul 29, 2007
262 posts
165 upvotes
Markham
Well if you look at it that way, then you're getting a deduction in 2019 for a RRSP contribution that you technically didn't make.

If you got a deduction in 2019 and then didn't have to pay tax on it in 2020, then you'd be getting $10,000 benefit from a $5,000 contribution. Which obviously doesn't make sense.
[OP]
Newbie
Dec 12, 2017
46 posts
Quebec
cgtlky wrote: The $5000 count as 2020 income.

You can contribute to your RRSP, but the $5000 have nothing to do with your 2019 tax reduction even if you used as your RRSP contribution.

RRSP is used to reduce your tax (or tax defer to a later date) and get back 25% of what you contribution.
But it reduces my 2019 income, no?
Deal Fanatic
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Jan 31, 2006
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qwertyjjj wrote: But it reduces my 2019 income, no?
Using that $5k as a RRSP contribution will reduced your 2019 income by $5K and get back $1250. But still in 2020 you will report it as an income.
Deal Addict
Mar 3, 2018
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GTA
cgtlky wrote: Using that $5k as a RRSP contribution will reduced your 2019 income by $5K and get back $1250. But still in 2020 you will report it as an income.
The refund generated depends on your marginal tax rate. So if you are earning $80K a year you are around the 40% marginal rate. The refund would be $2K in this example.
[OP]
Newbie
Dec 12, 2017
46 posts
Quebec
Mirage04 wrote: One example would be if you were anticipating making lower income in 2020 it would be more beneficial to put that deduction towards your 2019 taxes vs waiting until your 2020 taxes.
If I was on the same salary though then there would be no benefit unless I of course me another $5k contribution the year after as well and every year onwards whilst at the same job/salary?

Also, what are the benefits of RRSP loans? I don't see how taking a loan out would ever be beneficial since you get back less than you borrowed.
Deal Fanatic
Sep 23, 2007
5061 posts
1155 upvotes
If you received the bonus in 2020, it will count as 2020 income. But as long as you contribute before the RRSP deadline, your RRSP contributions will reduce your 2019 income.

So plan ahead. If you think your 2020 income will be much higher such that your marginal tax rate is higher, and if you don't think you will have a lump sum to contribute next year, then wait.
Deal Addict
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Jan 2, 2012
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qwertyjjj wrote: So I can use it to reduce my income in 2019 by contributing to a RRSP but then I just pay the tax again in 2020? What's the point in contributing at all?
What do you mean "pay the tax again"? You only pay tax on your income once, so for 2020 income you pay tax on it in 2020. You aren't paying any tax on this income in 2019.

However you are allowed to use the 2020 early RRSP contribution to reduce your 2019 income. It's entirely optional. If it makes you feel better you can simply claim the $5K RRSP contribution to reduce your 2020 income instead of 2019.
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Mar 9, 2012
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Kitchener
qwertyjjj wrote: Question about tax payments when the RRSP payment is made after December 31st and before March 1st (or the deadline date).
Say I receive a lump sum of $5,000 on January 15 2020 and I want to contribute this to my 2019 RRSP.
This reduces my income in 2019 by $5000.
However, when I get to the end of 2020, will they report this $5,000 as income for 2020 meaning I have to pay tax on it instead the year after?
A lump some of untaxed (or after tax) money received in any taxable income year (2020) should be RRSP's for 2020 to cancel out income. However, if you know your 2019 income is going to be much higher than your 2020 income and a lower tax bracket, then it makes sense to RRSP the money for 2019.
Why can't we all just get along?
[OP]
Newbie
Dec 12, 2017
46 posts
Quebec
I think I'm missing something in my calculations.
Let's say for example sake, I am due a bonus of 20k.
And assume that the marginal tax rate is 50%

If my company pays the lump sum directly into my RRSP then I have 20k in the RRSP, reducing my income by 20k, and I get 10k back in my tax return that I can then spend or invest.

However, if my company pay me directly, then I am immediately taxed. I get 10k in my account. If I want to pay the same 20k into a RRSP, I have to find 10k from somewhere (say savings), pay 20k into my RRSP, then get 10k back from tax. I end up net even since I contributed 10k of my own money.

Why is that when I have paid the same into my RRSP? Shouldn't both examples give me a return. It seems like I get 30k in scenario 1 but only 20k in scenario 2.
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Mar 10, 2018
3721 posts
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centre of universe
qwertyjjj wrote: Question about tax payments when the RRSP payment is made after December 31st and before March 1st (or the deadline date).
Say I receive a lump sum of $5,000 on January 15 2020 and I want to contribute this to my 2019 RRSP.
This reduces my income in 2019 by $5000.
However, when I get to the end of 2020, will they report this $5,000 as income for 2020 meaning I have to pay tax on it instead the year after?
If I read it properly you are mixing it up two things. There are two tax years 2019 and 2020. Also RRSP contribution is one thing and lump sum income is different.
By contributing before march you can take advantage for tax year 2019. Which you might get 30% or so back in May 2020.
But That amount still be added to 2020 income, with appropriate T forms.
I dont care about Ethics, morals, rules or laws. I will apologies only when I get caught.
I try not to apologies but sometimes do it. not because its right thing but it benefits me.
New Mantra for idiots Just ask RFD before searching answers anywhere.
[OP]
Newbie
Dec 12, 2017
46 posts
Quebec
callernamet wrote: If I read it properly you are mixing it up two things. There are two tax years 2019 and 2020. Also RRSP contribution is one thing and lump sum income is different.
By contributing before march you can take advantage for tax year 2019. Which you might get 30% or so back in May 2020.
But That amount still be added to 2020 income, with appropriate T forms.
Yes but the money will be going into RRSP before March 2020 to reduce 2019 income. Why is the credit not the same since in both scenarios the contribution is the same 20k
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Mar 10, 2018
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Also you should read your own post. You said "However, when I get to the end of 2020, will they report this $5,000 as income for 2020 meaning I have to pay tax on it instead the year after?"

It has to be reported that income for year 2020. Year 2019 has nothing to do with it.
"I receive a lump sum of $5,000 on January 15 2020 "
Last edited by callernamet on Jan 8th, 2020 1:18 pm, edited 1 time in total.
I dont care about Ethics, morals, rules or laws. I will apologies only when I get caught.
I try not to apologies but sometimes do it. not because its right thing but it benefits me.
New Mantra for idiots Just ask RFD before searching answers anywhere.
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User avatar
Dec 24, 2007
1451 posts
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BC
@qwertyjjj

You're forgetting that in both cases the company has to deduct a tax withholding on your bonus, regardless of how it pays you.
Say your regular paycheque is $10,000.

In #1. The company contributes $20K into the RRSP (your income is $20K) and will deducted $10K as a tax withholding from your regular paycheque, Your cash flow will be "zero" from the bonus and "zero" from your paycheque. Since you have income, you deduct the RRSP contribution $20K from your for tax, and get reduction in taxes, $10K you get back (refund)

In #2, Company pays you directly $20K (your income is $20K) and will deduct $10K as a tax witholding from your regular paycheque. In this case you will have a "$20K in cash from your bonus" and "zero" from your paycheque. You can contribute the $20K and get $10K back (refund).

Same amount in RRSP. Same tax refund
[OP]
Newbie
Dec 12, 2017
46 posts
Quebec
callernamet wrote: Also you should read your own post. You said "However, when I get to the end of 2020, will they report this $5,000 as income for 2020 meaning I have to pay tax on it instead the year after?"

It has to be reported that income for year 2020. Year 2019 has nothing to do with it.
"I receive a lump sum of $5,000 on January 15 2020 "
Yeah sorry I changed the question and amounts. Use the recent question :)

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