Wednesday, March 15, 2006

The RRSP Debate

Canadian Capitalist has posted a very thought- (and discussion) provoking piece on the continuing debate between RRSP and non-registered investing. I actually read end-to-end the report by research group Philip, Hager and North he included as a link.

The report, authored in August 2005, notes as one of its conclusions that "Changes in the progressive tax rates could impact which savings scenario provides the most after-tax capital. If the capital gains inclusion rate is further reduced, the benefits of holding equities within a registered plan will also be further reduced." [emphasis added].

The publication of this report preceeds two potentially important events - the November 2005 announcment by the former Liberal government regarding changes to taxation for dividend income and the yet-unrealized election promise by the new Conservative government to allow capital gains to be eliminated for individuals on the sale of assets when the proceeds are reinvested within six months (see the official Conservative platfom). If anyone has seen published research on the impacts these have on RRSP/non-registered investing, inclusive of these two factors I would be very interested. I admit openly I'm still an agnostic on the issue - I maintain both a registered and non-registered account. My RRSP benefits from employer contributions, while my non-registered investments are (will be) mostly Canadian companies with long histories of (supportable) dividend increases that I DRIP invest.


Blogger Canadian Capitalist said...

If the Conservatives introduce a savings method like the IRA (taxable contributions, but tax-free withdrawals) it would become a very attractive alternative.

My priority in saving is RRSPs, then RESPs, then mortgage paydown, then taxable investments.

3/17/2006 7:36 AM  
Anonymous Dave said...

Cool, my priorities are the same as you right now. RRSP, then line of credit (at a nice rate of prime), then taxable investments. Glad it makes sense to someone else!

3/17/2006 6:42 PM  
Anonymous Average Joe said...

If the Conservatives remove the capital gains tax, then the reason to save within an RRSP will pretty much be gone.

You would then definitely only have your fixed income portion of your portfolio in your RRSP.

3/19/2006 5:52 PM  

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