Capital gains that reduce capital losses
If you have caused capital losses from the current year, or from previous years that have not been deducted, you can claim these unused losses to reduce capital gains for the current tax year. Capital losses occur indefinitely and do not expire.
You can also trigger capital losses by losing money by selling investments (a strategic sale called tax cut sales) by the end of the year.
Can RRSP contributions reduce capital gains tax?
Contributions to your Registered Retirement Savings Plan (RRSP) may help reduce potential taxes on taxes payable.
When you contribute to RRSP, you can deduct income from within the scope of owning an RRSP room. RRSP deductions reduce your taxable income and calculate income tax. So to answer your question, Leslie, RRSP contributions can reduce the taxes that should be paid.
However, if your income is relatively low, you may not pay any tax on capital gains. In Canada, the basic individual amount of the federal government is $16,129, between $8,744 and $22,323, which puts income below these levels. Other tax deductions and credit may also reduce taxes on capital gains. The point is that low-income taxpayers with capital gains may not pay taxes anyway.
Sell assets? Read our Capital Income Guide
When will RRSP contributions make sense?
As a result, the contribution of RRSP is often meaningful at higher income levels. In fact, the best strategy is to contribute to RRSP during the year with high income and withdraw when tax rates are low in the future, usually retirement.
If your tax annual income, including capital gains, is lower than your expected future income, you can choose to pay tax on capital gains. Similarly, if you expect a significant increase in revenue due to future capital gains, you can decide to postpone RRSP contributions for the next year.
Interestingly, you can even contribute to RRSP and postpone the inference. You must report the contribution of RRSP in the year you make (contributions made during the first 60 days of the year are reported in the previous year’s returns), but you can choose to postpone the deductions until the next year. If you can deduct an amount of one year from now and save the tax rate in (for example, the tax rate is 10% higher than the current year), that guarantees a 10% after-tax yield, which is convincing.
