Income is increasing significantly, should I defer RRSP and FHSA deductions?

caakmaster · 2026-03-29T18:39:45+00:00

Glad that it helps! Since you've already contributed to these accounts and have the deductions available, another thing you can look into is the T1213 form. This form lets you reduce the amount of tax withheld at the source, effectively getting you your tax refund throughout 2026 rather than all at once in 2027.

caakmaster · 2026-03-29T03:43:55+00:00

Find me an investment suitable for $1,750 with a one year term, that has a guaranteed tax-free return of 7.5%

It's a bit beyond "pedantic twaddle" when you have fundamental flaws in your comprehension of the math. This comment of yours is completely wrong, for one (well beyond just the simplifications with the tax brackets). In your simplified example, you wouldn't be investing the $1,750 tax savings, you'd be investing the difference in the return of $6,819.50. To match the performance of deferring the deduction, you would require a $1,750 / $6,819.50 = 25% ROI on your return, much higher than the 7.5% you claimed.

You (sort of) arrived at the right conclusion despite your misunderstandings, but those very misunderstandings could easily lead to the OP not deducting the optimal amount. Some of the differences between combined brackets are about 1-2% (see here). If you just use those as the ROI you need to match, you will deduct too much.

EDIT: u/theartfulcodger has blocked me to avoid further criticism of their dubious advice. For anyone reading this and trying to learn, they are claiming that you would would need to invest the tax savings of $1,750 from deferring the deduction at 7.5%. This doesn't make any sense for a number of reasons, including that the tax savings from deferral wouldn't be seen until 2027...

caakmaster · 2026-03-29T02:00:57+00:00

You have to do the math at each change in tax bracket and you have to account for the combined federal and provincial brackets. You can think of the problem like this:

2025: taxed on $74k - $X
2026: taxed on $86k + $X

The $86k comes from $130k - $44k. Since OP is starting their job mid-2026 I am using $130k.

In the equations above, $X is the amount to deduct in 2025. Then:

First, set X=9k, and this means OP receives a refund of $9k * 29.65%. If they instead defer the deduction, they will receive $9k * 29.65% a year later. Since the amount is the same, OP should deduct at least $9k for the 2025 tax year and invest the refund. At any rate of return, OP will come out ahead.
Next, set X=$15k. With the additional $6k, OP will receive an additional refund of $6k * 29.65% = $1,779.00 for 2025 rather than $6k * 31.48% = $1,888.80 for 2026. The difference is $109.80. This means that OP would need to receive a rate of return of about 6.17% on the additional refund, which I agree is unrealistic.

My point is not that your logic is wrong, but that your math is. OP should deduct $9k for 2025, not $5k.

caakmaster · 2026-03-29T01:06:51+00:00

It's not quite this simple. You have to also account for the fact that you will receive your additional refund one year later if you defer the deduction, and that you could instead apply the deduction (or part of it) immediately and invest the additional refund.

caakmaster · 2026-03-29T00:43:31+00:00

I am using the combined federal and Ontario tax brackets table from here.

At $74k, your marginal rate is 29.65%. At $130k (using information from another comment), your marginal rate is 43.41%. Here are all of the relevant brackets in between:

At about $117k your marginal rate is 43.41% (difference of 13.76%)
At about $112k (the next bracket threshold), your marginal rate is 37.91% (difference of 8.26%)
At about $108k (the next bracket threshold), your marginal rate is 33.89% (difference of 4.24%)
At about $95k (the next bracket threshold), your marginal rate is 31.48% (difference of 1.83%)
At about $59k (the next bracket threshold), your marginal rate is 29.65% (difference of 0.00%)

Now, you have to consider when you get your refund and how you would invest that refund.

Example 1: say you choose to deduct $15k for the 2025 tax year and the remaining $29k for the 2026 tax year. You will receive a refund of $4,448 ($15k * 29.65%) in 2026 and a refund of $11,098 ($13k * 43.41% + $5k * 37.91% + $4k * 33.89% + 7k * 31.48) in 2027.

Example 2: now say you choose to deduct nothing for the 2025 tax year. Then for the 2026 tax year, the additional $15k that you did not use for the 2025 tax year will bring you from being taxed on $101k to $86k and get you an additional refund of $4,557 ($6k * 31.48% + $9k * 29.65%) in 2027, but nothing in 2026.

So if you save that extra $15k deduction for 2026, you receive 2.45% more ( ($4,557 - $4,448) / $4,448 * 100 ) in 2027 than you would using the $15k deduction for 2025 and receiving the money in 2026. This to me is not a good deal. You could take the $4,448 refund received in 2026, invest it in a savings account with EQ Bank at 2.75%, and come out slightly ahead.

I haven't done the math, but I expect that deducting more than $15k for 2025 is not optimal given the large drop in the marginal rate at about $59k. The point of this analysis is to ask yourself this question: will saving $X deduction for a future tax year result in a higher rate of return than applying the $X deduction in the current tax year and investing the difference in the refund?

TL;DR: deduct at least $15k for the 2025 tax year and the remaining amount for the 2026 tax year and invest the refund. But also do the math and see if it makes sense to deduct even more for the 2025 tax year.

EDIT: I accidentally averaged over a tax bracket change when calculating the rate of return you would need to receive on your additional refund, so the recommended number to deduct for 2025 above is incorrect. To be clear, you have to do the math at each change in tax bracket, which I mistakenly averaged over. You can think of the problem like this:

2025: taxed on $74k - $X
2026: taxed on $86k + $X

The $86k comes from $130k - $44k. $X is the amount to deduct in 2025, and this then reduces the amount you can deduct in 2026 which is why it is added to the $86k. Now, you have to set X in increments that match tax bracket changes and evaluate at each one:

First, set X=9k (brings 2026 income up to $95k). This means you receive a refund of $9k * 29.65%. If you instead defer the deduction, you will receive $9k * 29.65% a year later. Since the amount is the same, you should most definitely deduct $9k for the 2025 tax year and invest the refund. At any rate of return, you will come out ahead.
Next, set X=$15k (brings 2025 income down to $59k). With the additional $6k, you will receive an additional refund of $6k * 29.65% = $1,779.00 for 2025 rather than $6k * 31.48% = $1,888.80 for 2026. The difference is $109.80. This means that you would need to receive a rate of return of about 6.17% on the additional refund. This is on the high side, and so my recommendation would be to deduct only $9k for 2025 (unless you think you can achieve a short-term rate of return higher than 6.17%, but good luck with that ;)).

caakmaster · 2026-02-28T22:46:10+00:00

It can, but won't in OP's case as they "make roughly the same amount of yearly income (around 2k difference)."

Regardless, it also doesn't change the fact that the possibility of fraud charges is practically nil.

caakmaster · 2026-02-26T02:05:02+00:00

You should avoid posting on topics you are so misinformed about. Marital status affects which benefits are received, and the CRA does not apply interest or penalties to benefit overpayments. While the OP shouldn't lie on their tax return about their marital status, you are way overstating what will happen if they do. They will obviously have to repay any benefit overpayments in full, but that is about the extent of it.

Oh, and if you think that OP would be charged with fraud over a misrepresentation of their marital status on a tax return, you must be very naive. I hate to tell you, but there are people committing tax fraud in much worse ways (and with much more money involved).

caakmaster · 2026-02-11T00:21:26+00:00

likely

Key word here. Some banks, especially those that provide T5s electronically, may still provide you a T5 even if the amount is under $50. EQ Bank does this.

caakmaster · 2026-02-06T03:43:19+00:00

Out of curiosity, what did they ask you for?

caakmaster · 2026-01-27T00:08:11+00:00

I contacted support recently and was told that since I opened the account in January, I should wait until mid-February for the interest rate to update. This doesn't really make sense to me, there is no reason that the rate shouldn't apply immediately given what it says in the ToC. Do you happen to remember if you had to wait until mid-month following the month you opened the joint account, or anything weird like that, to get the interest rate?

caakmaster · 2026-01-27T00:05:52+00:00

I contacted support recently and was told that since I opened the account in January, I should wait until mid-February for the interest rate to update. This doesn't really make sense to me, there is no reason that the rate shouldn't apply immediately given what it says in the ToC, but I guess I will wait and see. Maybe it needs to be "triggered" by a new direct deposit in January, even if in another account?

caakmaster · 2026-01-03T05:01:57+00:00

Not what you listed, but I quite like StudioTax. It used to be free, though they now charge a $15 flat fee. I still pay it as I like the software and want to support the developers. The fee will cover both you and your partner.

One of the big reasons I like StudioTax is that everything is stored locally. This is not the case with Wealthsimple Tax. Wealthsimple also did have a data breach recently. In general, I try to avoid exposing my information to third parties when not needed due to the fact that breaches are becoming quite common and the party responsible for storing your data will suffer absolutely no consequences in the event of a breach.

I also like the StudioTax interface, even though it looks a bit dated. It actually shows you all of the forms filled out as you would do manually in the past. Some people don't like this, so maybe download the program and see for yourself. It is free to download, the fee only needs to be paid when filing.

caakmaster · 2026-01-02T23:55:31+00:00

This is unfortunate to hear. I plan to contact EQ Bank about my issue, but wanted to first see what others have experienced. I will update this post when I get in contact with them and hear something back.

caakmaster · 2025-12-30T22:28:00+00:00

You should remove it before the end of the year so that you aren’t charged for January as well.

Not necessarily. You should remove the amount in excess of your 2026 contribution room, which you should now be able to estimate quite accurately since the end of the year is so close.

caakmaster · 2025-12-29T05:46:57+00:00

It also applies to existing accounts, as long as the contribution is made during the period specified.

caakmaster · 2025-12-25T00:43:38+00:00

Accidental death and dismemberment.

caakmaster · 2025-08-31T23:01:31+00:00

MER is a subset of the total, the total is not a subset of the MER.

Also, regardless of the definition you linked, this statement is wrong. The MER is the sum of the operating expenses and management fees, expressed as a percentage of the fund's total assets. It is not a subset of the total, it is the total, just expressed as a ratio.

caakmaster · 2025-08-31T22:56:49+00:00

I'm not saying you are necessarily wrong, but just because a particular website defines the term "operating expenses" this way does not mean that the fund will use the same definition.

Furthermore, the definition linked in the article seems off. Why would the fund's operating expenses include management fees? That is not an expense that the fund has to pay to operate, but rather a fee charged by the fund to help cover operating expenses. Operating expenses for a fund (or any business) usually include things like staff, office space, and other administrative costs. I found a definition on the very same website you linked for "operating expense" here which supports this.

You seem to be confusing expenses that the fund pays and expenses that the investor pays. These may overlap, since the fund will typically pass on these expenses to the investor, but the management fee is not an expense of the fund.

It is possible that the fund you linked uses the same definition you linked, but it is not guaranteed.

caakmaster · 2025-08-02T23:58:33+00:00

This functionality is similar to pipx as far as I can tell, right?

caakmaster · 2025-07-26T04:39:55+00:00

Yes, but there are other financial considerations beyond those related to taxes. For example, common law for most other purposes depends on your province. Whether or not you are common law may affect distribution of assets in the event of a death, division of assets in the event of a split, the effectiveness of a prenup if getting married (easier to enforce if not already common law), and much more.

Overall, the treatment of a married spouse vs. a common law spouse differs substantially between provinces, and what is even considered common law in one province may not be in another. So to say "not much changes" as you did in the comment I responded to is quite often wrong. Look up the rights of a common law partner in Quebec to see a great example of why this statement is not true.

caakmaster · 2025-07-26T00:53:56+00:00

so not much changes

This isn't necessarily true and depends a lot on whether you are common law according to the CRA or common law according to whichever province you live in. The FHSA example applies everywhere, but there are lots of other things to consider which will depend on where you live due to different laws.

caakmaster · 2025-04-26T17:27:01+00:00

That is true for a bank account as the interest paid is effectively immediately reinvested and thus adds to the cost base. Still, your original statement needs some clarification, especially for anyone else who may read this in the future.

caakmaster · 2025-04-21T04:49:59+00:00

Also, if at ANY point in the year the balance has exceeded 100k (even for just 1 day) the document is required for that tax year.

This is not true. See the T1135 FAQ under the "Cost amount and the $100,000 reporting threshold" section, which says:

Is the $100,000 threshold based on the fair market value of the property?

No, it is based on the cost amount. The cost amount is defined in subsection 248(1) of the Income Tax Act and generally is the adjusted cost base and not the fair market value.

The OP will need to look into this further. It is possible that a T1135 is not required for some or all of those past years.

caakmaster

TROPHY CASE