Income earned by individuals in the form of dividends and capital gains is subject to lower tax rates than ordinary income. But withdrawals from your RRSP are taxed at your normal marginal rates regardless of the original source of the income. That means you lose the tax benefit of earning income through dividends or capital gains if that income is earned on investments in your RRSP.

Because of this, if you have an RRSP with dividend paying or capital gains earning investments you may want to consider if those investments could be switched for interest bearing securities that you have outside the RRSP.

By switching such investments you could reduce current personal taxes and avoid converting low rate dividends or capital gains to ordinary income. Usually there is no tax cost to making the switch but your RRSP administrator may charge some fees.

Please contact your accountant at Harvey, Lister & Webb Incorporated to discuss the possibilities.

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