ACTG 6730 Lecture Notes - Lecture 4: European Emission Standards, Crowdsourcing
Week 4: Managerial Tax Planning
Inside an RRSP, there is consumption sacrifice (aka investment).
• Consumption Sacrifice = [C.S. / (1-t0)] * (1+R)n (1-tn)
o [C.S. / (1-t0)]
▪ Contribution room
Investment Choices
• P: Overall Portfolio
• R: Registered
o Can be very undiversified
o Banks look to diversify R
o You are immune to the lock-in effect in a RRSP
o Invest bonds instead of equities inside RRSP
• NR: Non-registered
Why not hold equities inside RRSP?
• Equity already tax-favoured (g<1) outside RRSP
• Capital losses wasted inside RRSP
o Can’t e used to offset apital gains
o It will shield taxes otherwise payable
o Losses are assets
o Your losses inside are not shelterable against gains outside
• Equities could be taxed at g=1 if/when withdrawn
o i.e., g=0.5 for equities not preserved on withdrawn
o If you hold $1000 in RRSP and incur a capital loss of $100, you now have $900,
which is then taxed on upon withdrawal
P
Q
RRSP
300,000
100,000
Non-RRSP
100,000
300,000
Choose P when you are younger.
Choose Q when close to retirement because of the higher exit value, however, it poses the
question as to how that person got to that point in their investments.
Crowdsourcing is revenue recognition, not equity.
Diversification: investing in negatively correlating investments
MER
• Equity: 2.5%
• Balanced: 1.2%
• Bonds: 0.8%
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Document Summary
Inside an rrsp, there is consumption sacrifice (aka investment): consumption sacrifice = [c. s. Investment choices: p: overall portfolio, r: registered, can be very undiversified, banks look to diversify r, you are immune to the lock-in effect in a rrsp. Invest bonds instead of equities inside rrsp: nr: non-registered. Why not hold equities inside rrsp: equity already tax-favoured (g<1) outside rrsp, capital losses wasted inside rrsp, can"t (cid:271)e used to offset (cid:272)apital gains. It will shield taxes otherwise payable: losses are assets, your losses inside are not shelterable against gains outside, equities could be taxed at g=1 if/when withdrawn i. e. , g=0. 5 for equities not preserved on withdrawn. If you hold in rrsp and incur a capital loss of , you now have , which is then taxed on upon withdrawal. Choose q when close to retirement because of the higher exit value, however, it poses the question as to how that person got to that point in their investments.