Q: I often see people make the following comment on your site, saying to the effect that they cannot realize a loss on a stock because it’s in their RSP/RIF. They really can, and usually to a much greater benefit than in a non-registered account. It’s how you look at the issue.
Withdrawals from RSP/RIF are taxed at your marginal tax rate. The taxman is sharing in your loss, should you decide to sell, they’re just not sharing in the same tax year when you sell. Their ‘sharing’ comes when you withdraw funds.
To give an example of this:
At a $50,000 income level, the combined Provincial (Ontario in this case, but all are similar) and Federal income tax rate is 30%, and the capital gains tax rate is 15%. If you took a $20,000 loss in an RSP/RIF, upon eventual withdrawal, you’ll be paying $6,000 less in tax (because you won’t be withdrawing what isn’t there - because you would have sold already). Had the sale been in a non-registered account - and you suffered the same $20,000 loss - you would only be saving $3,000 in taxes, because the capital gain rate at $50,000 income is only 15%.
At $93,000 income, tax rate is 38%, and capital gains tax is 19%. Using the same example, a $20,000 loss would mean that, upon withdrawal, $7,600 less will be paid in tax versus had the loss been realized in a non-registered account, the capital gains tax saved would only have been $3,800. The higher the income, the more this scenario plays out to the individual’s advantage.
It’s a different way of thinking about it, and I realize that one doesn’t want to see a loss in a registered account because the funds cannot be replaced, but putting that aside, the taxman most definitely shares in your loss in an RSP/RIF, to an even larger extent than they do with capital gains. it’s just that you can’t ‘see’ it, you have to think about it. But it is the long game.
At any rate, just another idea, and please publish if you feel it is worthwhile for your subscribers.
Withdrawals from RSP/RIF are taxed at your marginal tax rate. The taxman is sharing in your loss, should you decide to sell, they’re just not sharing in the same tax year when you sell. Their ‘sharing’ comes when you withdraw funds.
To give an example of this:
At a $50,000 income level, the combined Provincial (Ontario in this case, but all are similar) and Federal income tax rate is 30%, and the capital gains tax rate is 15%. If you took a $20,000 loss in an RSP/RIF, upon eventual withdrawal, you’ll be paying $6,000 less in tax (because you won’t be withdrawing what isn’t there - because you would have sold already). Had the sale been in a non-registered account - and you suffered the same $20,000 loss - you would only be saving $3,000 in taxes, because the capital gain rate at $50,000 income is only 15%.
At $93,000 income, tax rate is 38%, and capital gains tax is 19%. Using the same example, a $20,000 loss would mean that, upon withdrawal, $7,600 less will be paid in tax versus had the loss been realized in a non-registered account, the capital gains tax saved would only have been $3,800. The higher the income, the more this scenario plays out to the individual’s advantage.
It’s a different way of thinking about it, and I realize that one doesn’t want to see a loss in a registered account because the funds cannot be replaced, but putting that aside, the taxman most definitely shares in your loss in an RSP/RIF, to an even larger extent than they do with capital gains. it’s just that you can’t ‘see’ it, you have to think about it. But it is the long game.
At any rate, just another idea, and please publish if you feel it is worthwhile for your subscribers.
