One of the objectives of tax planning with RRSPs is to contribute funds in years when you are subject to higher tax rates, and withdraw funds in years when you are subject to lower tax rates.

One such opportunity could arise in the first year you become self-employed, when your net income is low as a result of start-up costs, or is deferred as a result of tax planning.  For example, if you are commencing a business in 2008, you could contribute $10,000 to your RRSP by February 29, 2008, deduct it on your 2007 tax return, and receive a tax refund. You could then withdraw the $10,000, net of withholding taxes, from your RRSP later in the year, include it in your 2008 income, and pay little or no tax as a result of having little or no other income in the year.

If you are planning to start a business, consider the short-term saving of a well-timed RRSP contribution.

Information for Tax Tips is provided as a public service by the Chartered Accountants of British Columbia.