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Most employees don't really know why they get a tax refund when they add to an RRSP.
They understand that they do get one, and that it's "good" but really they don't understand the mechanics.
It's actually so simple.
🧵
They understand that they do get one, and that it's "good" but really they don't understand the mechanics.
It's actually so simple.
🧵
Your employer is estimating how much tax you'll owe based on how much they're paying you.
If you add to a personal RRSP, your employer doesn't account for that in their estimate.
When you put money into an RRSP, the CRA won’t charge you income tax on the amount you put in.
If you add to a personal RRSP, your employer doesn't account for that in their estimate.
When you put money into an RRSP, the CRA won’t charge you income tax on the amount you put in.
If your employer estimated that you'd owe money on that, they paid that amount to CRA on your behalf.
This is your "withholding tax". It's meant to ensure CRA gets their due.
Withholding tax is just an advance payment of your annual income tax.
This is your "withholding tax". It's meant to ensure CRA gets their due.
Withholding tax is just an advance payment of your annual income tax.
When you file and report the RSP contribution, the CRA refunds you the tax that your employer sent in on your behalf, because they don't make you pay tax on those contributions!
(for now….. )
(for now….. )
And that's where your tax refund comes from!
It was your money all along that was being held by the CRA.
#taxes #incometax #retirementplanning #rrsp
It was your money all along that was being held by the CRA.
#taxes #incometax #retirementplanning #rrsp
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