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Minimize Taxes Through RRSPs

Recognize a tax break when you see one! Registered Retirement Savings Plans (RRSPs) are the most effective way for you to save money for your retirement. That's because the contributions you make into your RRSP are tax deductible. Also, within your RRSP, you can tailor your investments to fit your particular goals and style. And if you're married to a lower-earning spouse, you can contribute to a spousal RRSP, reducing your own retirement income and the tax bite it incurs.

A Tax Savings Idea!

A labour-sponsored venture capital corporation (LSVCC) is a form of mutual fund corporation, sponsored by an eligible labour body. LSVCCs are mandated, under their enabling legislation, to provide venture capital to small and medium-sized businesses.

Investing in a Labour Sponsored Fund (LSF) can save you up to $750 in taxes. Here's how it works: If you invest $5,000 in a provincially-registered LSF, the federal government will give you a 15% tax credit on the $5,000. Therefore, your $5,000 investment will actually save you $750 in taxes. In addition, if you buy a LSF inside your RRSP, you will also get the RRSP deduction. Depending on your tax bracket, you could get back close to $3,250 as a tax refund (if you're in the highest tax bracket).

Note that in Budget 2016, the federal government announced that the federal LSVCC tax credit for federally registered LSVCCs will remain at five per cent for the 2016 taxation year and be eliminated for the 2017 and subsequent taxation years. The prohibition on new federal LSVCC registrations and the transition rules for federally registered LSVCCs will be maintained.

Labour Sponsored Funds can be a good option for some investors, but beware they're considered aggressive and high risk. This is because the funds invest in smaller Canadian companies. Plus, you must hold onto the fund for eight years in order to maintain the tax credits.



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