When are TFSAs and RRSPs actually taxable? + MORE Feb 29th

Welcome to CB’s personal-finance advice column, Make It Make Sense, where each month experts answer reader questions on complex investment and personal-finance topics and break them down in terms we can all understand. This month, Zoe Wolpert, a chartered investment manager and senior advisor at money-management platform Wealthsimple, tackles tax strategies to improve your long-term investments. Have a question about your finances? Send it to editor@canadianbusiness.com.

Q: Aside from remembering to maximize my RRSP contributions before the end of February, what other tax strategies can I be taking advantage of to improve my long-term investment performance?

While talking about taxes can feel about as fun as doing seven loads of laundry on a Friday night, it’s worth it. Tax strategies can be very important, especially as your income increases. With just a few smart tactics, you could keep thousands of extra dollars a year in your own pocket. Or better yet, invested…

Financial experts suggest 25-year-olds save 20% of their annual income. But if you’re in your 20s and just starting your career, saving might not be a high priority. Expenses like rent, groceries and car payments seem more pressing—not to mention having a life and planning for big events like an adventure trip or your friend’s upcoming wedding.

With all these competing costs, coupled with Canada’s elevated rate of inflation, it might seem like you’re falling behind your peers financially—especially if you’re on TikTok or Instagram, where it seems like everyone is living their best life. But what’s a “normal” amount of savings for young adults in Canada? We find out.

Average savings for Canadians under 35

According to Statistics Canada’s pre-pandemic data on savings by age in Canada, households with a major income earner 35 years or younger saved an average of $4,782 in 2018. And its 2019 figures indicate that Canadians under 35 had average savings of $10,720 in the bank, along with $8,395 in a tax-free savings account (TFSA), and $9,905 in a registered retirement savings plan (RRSP)…

Ask MoneySense
I saw your blog online; thank you so much for the wonderful job that you are doing—it was very informative! That motivated me to start investing too, but now I have a couple of questions. I understand that there is tax on U.S. dividends in TFSA. Do we pay tax as well when we sell:

U.S. stocks in TFSA

U.S. stocks in RRSP

Canadian stocks in RRSP

—Tawheeda

Tax considerations for your TFSA and RRSP

It’s great to hear we motivated you to start investing, Tawheeda. Stocks are a great way to build wealth for the long term, despite the short-run volatility. Tax plays a role in your portfolio construction and returns, so let me explain the implications. 

TFSA day trading: Do you pay tax?

Tax-free savings accounts (TFSAs) are mostly tax-free. When you buy and sell an investment for a profit, that is generally tax-free inside a TFSA, regardless of the type of investment. 

One exception could be if you are day trading in your TFSA. If you are engaging in frequent trading activity, there is a risk your profits could become taxable as business income…

Ask MoneySense
I overcontributed to my RRSP by accident, and I am looking for some advice on how to deal with it. I contributed $3,550 to my 2022 RRSP in October 2022. I then forgot I made this contribution and again in February 2023 I made a $3,550 contribution.

What options to I have to address the over contribution? Can I count my February 2023 contribution towards my 2023 tax return?

—Ryan

How to fix an RRSP overcontribution

This is the time of year that people tend to find out about inadvertent overcontributions to their registered retirement savings plans (RRSPs). If you want to know where you stand, an income tax notice of assessment will show your:

RRSP deduction limit for the year

Unused RRSP contributions previously reported and available to deduct this year

Available RRSP contribution room (#1 minus #2)

If you have more unused RRSP contributions than you have RRSP deduction limit, that means you have an RRSP overcontribution.

What happens if you overcontribute to your RRSP?

A taxpayer is allowed to overcontribute to their RRSP by up to $2,000 at any time, Ryan…