Tax Question

By: GenXinvestor

TaxesOver the past few weeks I’ve been gathering information to do my family’s income taxes.  I’ve started to input the info into Turbo Tax and run some optimizing tools to make sure that we get a decent refund.

My taxes were pretty straightforward and I ended up getting a refund of about $2,200.  I managed to get this in spite of having filed paperwork to reduce my taxes at their source for 2014.  A couple of things came together last year that resulted in that tax refund. I worked a lot of overtime, I maxed out my RRSP in 2014 and I had some interest expenses to deduct as a result of having borrowed money to invest in eligible dividend stocks.  That’s all good and my taxes are done.

My wife’s taxes, on the other hand, are another story.  She owes just over $7,000 in income taxes! Her taxes can be a bit tricky because she is self-employed.  Typically she is required to pay income tax by instalments every quarter.  The amount owing is based on the prior year’s earnings and this is where we got caught.  She made substantially more in 2014 than she did in 2013 (due to a mat leave).

Luckily, we are in a pretty good financial position so this isn’t as big a hit as it may seem at first glance.  Because we recently moved into a new home we’ve built up our cash reserves to cover any unexpected expenses.  It appears to me that this is one such expense that warrants dipping into that cash pile.

In addition to my own refund of $2,200 I found out that I will be getting a work bonus that will amount to about $3,000.  So my question is what should I do with this money?

Option 1 – invest it in my wife’s RRSP so it will reduce the amount of taxes owing.  My wife has lots of RRSP room and I think that it would be wise to invest the 5k there so we get a tax break.  If we go that route her tax owing will be reduced to about $5,000.  Personally, I like the idea of getting a tax break and having that money grow in tax-sheltered investments over our lifetime.  This will increase our asset base while also reducing the amount of taxes that we pay.  To me it seems to be a win-win situation.

Option 2 – Pay the full amount of tax owing and look for other opportunities to invest whatever is left over.  I’m not a huge fan of this option because it means that we lose 7k without any tangible benefits.  I should also mention that I’m in the process of moving non-registered investments into my wife’s TFSA so we can max it out.  I’ve already maxed out my TFSA for the year so that really leaves us with limited options.

Let me know what you all think…the March 2nd deadline is just around the corner!

Image credit: Stuart Miles /

4 thoughts on “Tax Question

  1. BeSmartRich

    I would go for option 1. I strongly believe that money is only valuable when it is in my hands. By contributing to RRSP you can cut off 2K or more of tax which is free money for you. Also you can consider in getting RRSP loan to take advantage of the low interest rate and contribute a bit more to reduce the tax even more.



    1. GenXinvestor Post author

      Thanks for the response. A lot of the feedback that I’m getting says to go for option 1. Saving 2k in taxes is well worth it and we get to keep some of the money to invest for the long haul.

  2. DivHut

    I too would choose option 1. Invest in a retirement account and cut your tax burden and use the funds to build up your future passive income stream.


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