If you are aware of the Home Buyer’s Plan or the Lifelong Learning Plan, you know that there are ways you can get money out of your RRSP (temporarily) through tax-free withdrawals. The programs require that you pay money back to your RRSP over time and the CRA will inform you of how much of the loan is required to be paid back in any given year.
There is no rule that says you have to make the repayment – only that if you don’t, then the year’s required re-payment amount will be included as taxable income for that tax year. So if you are in a low income year and you have a repayment required – it might not be a bad idea to skip the payment and add the payment amount to your taxable income – it won’t make a significant impact on your taxes.
So for example, if you contributed to a spousal RRSP for your spouse or common-law partner and used money for the HBP or LLP – if your spouse is a stay-at-home parent with no income – they won’t pay tax on skipping the re-payments. Note that their income deemed to have been received may reduce the spousal credit if you qualify for it.
Additionally, you can make contributions to your RRSP and simply elect to not use the contributions towards the required HBP or LLP repayments IN ADDITION to not claiming the RRSP deduction. You would do this if you wanted to shelter money for long term growth NOW but wait until a higher income year in the near future to use the deduction to reduce taxes.
As always, make sure to consult with your own qualified financial advisor before engaging in any financial strategies.