Expanded Horizons: RRSP: Making a difference

On May 17th, 1964 in the “Steel Town” of Hamilton, Ontario a Canadian icon was born. It was on this day that Tim Hortons[1] opened the doors to their first store offering cups of coffee and doughnuts for 10 cents each. 

Little did its namesake and his eventual partner, Ron Joyce, understand the impact this franchise would have on the Canadian identity.  Tim Hortons has weathered acquisitions, mergers, and intense competition to continue dominating the Canadian landscape. It is estimated almost 8 of every 10 cups of coffee sold in Canada is a “Timmie’s” and that 15% of all Canadians visit a Tim Hortons every day.[2]  Tim Hortons has even changed how we order coffee, with the “double-double” being officially added to the Canadian Oxford Dictionary in 2004. 

Tim Hortons is probably best known for their “Roll up the Rim” marketing campaign, which occurs around this time of year. “Roll up the Rim” also coincides with another Canadian tradition: RRSP season. This represents your last chance to contribute to your Registered Retirement Savings Plan (RRSP) and still receive a deduction against your 2017 tax return.[3]


Why invest in an RRSP?

The RRSP remains one of the best ways to save for retirement. The investment options are diverse and your contributions are tax deductible. The tax refund or reduced tax obligation frees up money to reinvest, though experience tells us it is more likely to be used in other ways. The growth of the investments held by the RRSP is sheltered from tax until such time as they are withdrawn.[4] The tax sheltered growth allows for your retirement funds to accumulate more effectively and the “penalty” for withdrawing the funds makes you think twice before they are accessed. Many consider these sacred and they are typically only accessed as a last line of defence. These combine to make the RRSP an ideal vehicle to build for retirement.


A decline in popularity

While Tim Hortons remains an important part of the Canadian landscape, RRSPs appear to have lost their appeal. A recent CIBC poll[5] on retirement planning found that 39% of Canadians believe there is no point in investing within an RRSP: the reason – taxes. This decline has accelerated since 2009 when the Tax-Free Savings Account was introduced. Today the unused RRSP contribution room has surpassed $1,000,000,000,000 (that is $1 trillion in case you got tired of counting zeroes).[6] 

Another concerning statistic from the poll was over half (54%) said they did not understand the tax consequences of the RRSP upon death. Even with the decline in popularity, the value of RRSPs (and other registered accounts) continues to grow at a significant rate. In 2015 alone there was over $39 billion in new RRSP contributions.[7] 


Death and the RRSP[8]

One of the unique elements of the Canadian tax system is the treatment of personal assets upon death. The tax rules treat these assets as being disposed of immediately prior death with the associated gain or income reportable on your terminal tax return. For most Canadians the terminal return represents their largest tax bill, especially those with significant RRSP accounts as these are included as income. 

Proper planning for your RRSP is prudent as the tax rules provide a number of exceptions which can allow for your RRSP to rollover tax-free to certain beneficiaries. The most common is to leave the RRSP to your spouse, either via a beneficiary designation (the preferred method) or through your will. Where the proper steps are followed the RRSP of the deceased winds up in the surviving spouse’s RRSP. The funds will then be taxable to the surviving spouse when withdrawal or upon their subsequent death. 

Some lesser known alternatives include a rollover to a financially dependent child or grandchild (under the age of 18) or to a financially dependent child or grandchild who was dependent on you because of a physical or mental disability (no age restriction). 

For the rollover to a financially dependent child or grandchild – under the age of 18 – the proceeds of the RRSP must be used to purchase a registered annuity that must end by time the child or grandchild reaches the age of 18.  The registered annuity effectively spreads the tax on the RRSP over a number of years and is taxable to the child or grandchild at their marginal tax rates.

Where you have a child or grandchild who is financially dependent upon you and qualifies for the disability tax credit, i.e. they suffer from a physical or mental disability, two alternatives are available.

The first is to have the proceeds of the RRSP roll directly into their RRSP and effectively taxed in their hands. Care needs to be taken to ensure the new registered assets do not impact eligibility for provincial assistance programs. It is strongly recommended you review the criteria for the specific provincial programs and plan accordingly.

The final alternative is to transfer the proceeds of the RRSP to the child or grandchild’s Registered Disability Savings Plan (RDSP). Restrictions are in place that may limit the amount available to be rolled over into the RDSP. The total amount of proceeds which may be rolled over to an RDSP cannot exceed the beneficiary’s available RDSP contribution room and will reduce the beneficiary’s RDSP contribution room.  Further, the rolled over proceeds will not be eligible for any Canada Disability Savings Grant.


Make a difference with your RRSP

Your RRSP is an excellent vehicle to build for retirement and with proper planning can make a significant difference in someone’s life.  In addition to the rollovers that benefit your loved ones you can also minimize the tax impact by considering leaving all or a portion to a charitable organization of your choosing. This can be accommodated directly with a beneficiary designation on the account and can be done in conjunction with any of the rollover alternatives discussed. Ultimately who is in a better position to determine how to spend your hard earned savings: the charity supporting a cause important to you or the government?

Reviewing your options with your trusted advisor will ensure your retirement plans stay on track and that you and those you care about benefit. With the ease of making beneficiary designations it could literally take the time to order a double-double to change someone’s life.

February 2018

This article was provided courtesy of Chris Geldert, CPA, CA, CEA 

Chris Geldert joined Financial Horizons Group in 2013 and is excited to be able to continue providing first class resources advisors should come to expect from their MGA. As a Chartered Accountant with over a dozen years in the insurance industry, Chris works to bridge the gap between client’s professional advisors. From developing and presenting strategies, to providing independent recommendations on products suited to the client’s needs and risk comfort levels, Chris works to assist advisors grow their practice. 

The writer can be contacted at:

Disclaimer: This article is intended to provide general information only and should not be considered as legal, accounting or taxation advice. Before acting on any of the information contained within this article, or before recommending a course of action, make sure your clients seeks advice from a qualified professional. Any examples or illustrations used in this article have been included to help clarify the information presented in this article and should not be relied on by you or your client in any transaction.


[1] The original stores were opened under the name Tim Horton Donuts.

[2] These stats are provided by Tim Hortons: Tim Hortons - Fresh Facts

[3] The deadline for RRSP contributions to qualify for deduction for 2017 is March 1, 2018.

[4] Exceptions exist where the funds are “borrowed” under the Home Buyers Plan and the Lifelong Learning Plan.

[5] From January 12th to January 14th 2018 an online survey was conducted among 1,523 randomly selected Canadian adults who are Angus Reid Forum panelists. The margin of error—which measures sampling variability—is +/- 2.5%, 19 times out of 20. The results have been statistically weighted according to education, age, gender and region (and in Quebec, language). 

[8] The comments made by the author regarding the tax consequences and planning are also applicable to Registered Retirement Income Fund (RRIF)