Mini-budget change benefits self-directed RRSPs
Contributions in kind, as they are called, allow you to earn an RRSP tax deduction even if you don’t have any cash. This is done by contributing shares or mutual fund units held outside a registered plan directly to an RRSP.
The problem is that any capital gains are deemed to have been realized when the asset goes into the plan and is taxed accordingly. However, that burden has been reduced since Mr. Martin announced the capital gains inclusion rate was being decreased to 66-2/3% (in February) and then to 50% (in October).
The impact is significant. Suppose you contributed shares worth $10,000 to an RRSP and your marginal tax rate is 45%. They have doubled in value since you bought them. Last year, you would have been liable for tax of $1,687.50 on your contribution. Now the tax due will be $1,125, a saving of more than $560.