Paying too much tax? How much is too much?

Do you ever wonder whether you are paying more tax than you need to?  Do you hear stories about people claiming all kinds of deductions or about rich people being able to avoid tax?

At tax time each year, these questions are foremost in Canadians’ minds.

Preparing your tax return carefully can have some effect.  Years ago, the newspapers often had stories where a reporter took his tax details to 3 different tax preparers and received vastly different refunds.  However as a tax filer with Canada Revenue Agency for 20 years, we’ve learned that even if your return was carefully prepared, you still could be paying too much tax.

The largest tax savings come from tax planning. It’s about what you do during the year, not about how your record it in the end.

What is tax planning?  It’s planning ahead to setup your finances in a way to minimize your tax.

Why bother with a financial and tax plan?  When you have a plan, you do everything differently.

For example, your retirement plan should tell you how much you need to invest each year and what rate of return you need to have the retirement you want.  In addition it should also tell you:

  • Is RRSP or TFSA better for you?
  • Should you contribute to your RRSP, your spouse’s RRSP or a spousal RRSP?
  • How much can you contribute without going into a lower tax bracket?
  • What is the optimal amount for you to contribute into each account?

To be confident that you have the right answer to these questions, it’s important to know your tax brackets today, over the next few years, and after retirement.

Your plan can also clarify whether advanced ideas make sense for you.  One example is the Smith Manoeuvre, which converts your mortgage over time into a tax-deductible credit line.

Working with a financial planner who has an accounting background can be a very effective way to include tax planning in your financial plan.  Tax and the rest of your plan need to be considered together. You should never do an investment strategy only for tax reasons.

You can remove those questions at tax return time by developing a financial plan that includes minimizing your tax.  You’ll gain confidence that you’re doing the right things to achieve your financial goals.

Planning With Ed


Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax  accountant, expert in many tax & investment strategies, and a popular and passionate blogger.

Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.

The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.

Get your plan! Become financially secure and free to live the life you want.


  1. Ed Rempel on October 9, 2017 at 1:49 PM

    Please go ahead, Auto.

    My blog is here to educate Canadians. Feel free to link to it!


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  3. Ed Rempel on February 13, 2017 at 11:02 AM

    Hey Ernie,

    It’s nice that your plan includes a romantic weekend. 🙂

    It’s hard to comment on your plan, Ernie, without knowing your entire situation. In general, there is a balance between trying to leave your investments grow longer, but being able to withdraw them at lower tax rates.

    RRSPs can be a real issue that requires a lot of planning. While you get deferred growth, after age 71 you are forced to take larger and larger amounts out. Even worse, if you leave too much in your RRSP, your estate will pay 50+% tax on it.

    I would suggest to work out a plan to withdraw your RRSPs over time at lower brackets. The low bracket goes up to $45,000/year. It sounds like you already have a pension, since you are retired without withdrawing any money. It might work to withdraw enough RRSP to get you up to $45,000 taxable income each year.

    The goal is to withdraw your RRSPs over your lifetime in a way that you:

    – Don’t run out of money.
    – Don’t leave too large an RRSP for your estate to pay tax on.
    – Withdraw at lower tax rates.
    – Leave your investments tax-sheltered as long as possible.

    Depending on how much money you want to live on, how much pension you have, how large your RRSP is, and other factors, you should work out a strategy to achieve this.

    This should be part of your overall retirment income plan, including your TFSAs and other investments. Try to create a sustainable income that is as high as possible (after tax, of course).

    Planning income for retired people is full of opportunities to save tax. Tax brackets for seniors can get high because of all the clawbacks of government programs.

    Your idea of $15,000/year sounds good. You started with the TFSA limit and worked backwards. It is likely not optimal, though.


  4. Ernie McGrath on February 12, 2017 at 12:25 AM

    Thank you Ed for your quick reply. Actually I have been retired nine years. I am fortunate in that I earned a very sufficient pension during my working life. My spouse and I worked very hard and raised two children, now living in other major Canadian cities. We planned and achieved our financial goals over the years. We have investments in RRSP, TFSA and unregistered accounts, none of which we have ever made withdrawals. I am a young 64 and my spouse 58. I totally agree with your comment that withdrawals should be made from RRSP first. We could continue to allow the RRSP investments to grow until each person reaches their 71st birthday. No doubt that would increase our portfolio and make additional money for the government. I don’t know how you feel but I have no desire to make money for the government. My plan is to withdraw $15000.00 annually from RRSP investments. The witholding tax would be 20% or $3000.00. That leaves us $12000.00 which we would reinvest $11000.00 directly into our Individual TFSA accounts. The remaining $1000.00 we would blow on a romantic weekend somewhere different each year. Ed I would appreciate your views or recommendations regarding our plan.

  5. Ed Rempel on February 11, 2017 at 8:58 PM

    Hi Ernie,

    That is a complex topic. To be sure of the right answer, you need to have a retirement plan that looks at all the issues.

    Are you asking about when to make the leap into retirement, or after you retire when should you start withdrawing from your RRSP?

    The general tax goal is to withdraw all your investments at the lowest tax brackets throughout your retirement. It’s not just the current year.

    For example, the question I always ask is: Can we withdraw now at a lower tax bracket than we will be withdrawing at in the future?

    The general principles are:

    – Don’t withdraw it sooner than you need to, so your investments have more time to grow.
    – Plan a sustainable withdrawal throughout your life. The standard “4% Rule” isn’t always reliable, but you can go higher than 4% if you manage it right. (Stay tuned for my article on this topic in a few weeks.)
    – Plan to withdraw as much as you can from your RRSP at the lower tax brackets, and then use TFSAs and non-registered after that.
    – If you are in a bracket affected by government clawbacks, you can plan to minimize the clawbacks by either withdrawing less from RRSP or sometimes by withdrawing from RRSP in lump sumes every few years.

    If you are retired, you need enough money to live on. If you only have RRSPs, you have little planning opportunities. It’s good to also have significant TFSA and non-registered investments, as well.

    Whether to withdraw from RRSP or take CPP is addressed in these 2 recent articles:

    Does that answer your question, Ernie? If your situation is not addressed by these general comments, let me know your specific issue.


  6. Ernie McGrath on February 10, 2017 at 3:49 PM

    Ed, do you have any hints or tax saving ideas for the right time to take money from your RRSP. I know the rules allow you to keep the money invested till age 71. I believe inidividual circumstances can support earlier withdrawals. What is your opinion on this topic?

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