Author: kiara

Recent developments in the Middle East have introduced renewed geopolitical uncertainty into global markets. As expected, the initial reaction included market volatility, rising oil prices, and increased demand for traditional safe‑haven assets such as gold and the U.S. dollar. These moves reflect short‑term caution rather than a fundamental shift in the long‑term economic outlook.

The primary area of focus has been energy markets. A significant portion of the world’s oil flows through the Strait of Hormuz, and concerns about potential disruption have pushed oil prices higher. That said, global oil markets entered this period relatively well supplied, and OPEC+ has already taken steps to increase production—factors that may help limit longer‑term impacts if the conflict remains contained.

Higher energy prices can contribute to inflation pressures, which is why bond markets have been sensitive to these developments. For now, markets appear to be pricing in uncertainty rather than a lasting economic shock. History shows that geopolitical events often create short‑term volatility, while long‑term market performance continues to be driven by fundamentals such as earnings, growth, and valuation.

Our perspective at Rothenberg Wealth Management

Periods of uncertainty reinforce the importance of staying focused on fundamentals rather than reacting to headlines. At Rothenberg, we have access to Harbourfront institutional quality investment solutions that are actively managed to take advantage of long-term opportunities in the markets. Speak with a Rothenberg Wealth advisor to find out more about how these investment solutions can help you achieve your financial goals.

Read the full, in‑depth article here. 

Tax season is here, yet again. If you’re a tax filing veteran, you’re likely comfortable filing your tax return yourself, without any help. There’s satisfaction in doing it yourself and as it turns out, you might even enjoy it.

Canadians still love their tax refunds, but with an increasing number of people missing refunds due to costly mistakes, you might be torn over whether you should go the do-it-yourself route or if now is the time to employ the services of a tax expert.

An error on your tax return can lead to a penalty, interest charges or even an audit by the CRA. Perhaps most importantly, however, you may miss out on valuable tax deductions or credits.

When To Do Your Taxes Yourself

Preparing your own tax return should be easy if your financial situation is simple. We’ll call these people Tax DIYers, where DIY stands for “Do-It-Yourself!”

TurboTax and other off-the-shelf tax preparation software options will walk you through a series of questions about your finances and alert you to any credits and deductions you may qualify for. They don’t require any math calculations or in-depth knowledge of the tax code.

But how do you determine if your position is simple?

1. If preparing your taxes just requires you to pull information from a handful of documents prepared by others, such as the T4, you’ll find basic tax software suitable.
2. If your tax situation hasn’t changed over the last year, you work for an employer, are single with no kids, etc., your tax return would be very straightforward.
3. If nothing is going on in your life that can complicate your tax situation, it might not be worth paying a professional.

When to Hire a Professional

You might be better off hiring an accountant than trying to do your tax return yourself in some situations.

Tax preparers stay up to date on tax codes as well as provincial and federal tax laws.

An accountant can recommend what deductions and exemptions you qualify for and help you plan for future growth by informing you about any tax requirements changes.

Hire a tax expert in case of:

1. Major Life Changes

If you recently got married (congratulations), you might need a professional to guide you on the tax filing status to use. While most couples prefer filing jointly, there are some situations where it makes more sense to file separately.

It’s not just marriage. Other life milestones like expanding your family and having a child, losing or getting a new job, graduating from college and relocating could all impact your tax return and your potential total refund.

An accountant can help you learn about any new benefits or tactics to minimize your tax liability. This way, you will be able to take advantage of every tax break available to you.

A tax professional can also help you learn to navigate your tax return this year, so you feel confident doing it yourself in the future. You can always revert to doing your own taxes if you don’t experience any other major life changes the next year.

2. Failing to Pay in the Past

If you failed to file necessary tax returns in the past years, reach out to a tax expert.

They know about the programs offered by the CRA for individuals in this situation. A tax accountant can help you file years’ worth of returns, something that might take you a long time to master, especially as the April 30 tax filing deadline approaches.

This gives you confidence that your tax return is filed correctly and the peace of mind that you’re in good standing with the CRA.

3. Owning a Business

If you are a business owner, you should probably consider hiring an accountant to prepare your tax return.

Almost every financial transaction comes with some kind of tax consequence. Your accountant will prevent you from making any costly mistakes, help you report tax items accurately, and maximize deductions.

You should also use a tax preparer if you purchased rental property during the year.

4. Simply Not Having the Time

Tax preparation involves gathering documents, reviewing the procedures, and filling out tax forms. It is a notoriously slow and boring process, which is why so many of us dread it and postpone it until the last minute.

While doing this might seem like a simple weekend project for some Canadians, for others, not so much. Maybe you feel that the time you’d spend doing your taxes would be better spent elsewhere.

Consider hiring a tax expert if you lack the time or patience to prepare your own return.

In Conclusion

There is no universally correct answer when it comes to filing your taxes with software versus hiring an accountant or tax professional. Ultimately, the choice comes down to the complexity of your tax situation.

If your tax situation is fairly straightforward and you have some confidence in your ability to work step-by-step through tax software, it’s relatively cheaper to do your own taxes this way.

If your tax situation is more complicated, hiring a tax preparer can be worth the expense. Just ensure the preparer has the right credentials and stellar testimonials to avoid being a victim of tax scams.

Over to You…

The official deadline to file your Canadian personal income tax return for 2025 and pay any taxes owed to the Canada Revenue Agency (CRA) is April 30, 2026. 

As we welcome a new year, it’s the perfect time to revisit your financial goals, take advantage of updated contribution limits, and ensure your long‑term strategy still aligns with life’s evolving priorities. With new TFSA and RRSP limits in effect for 2026, it’s an ideal moment to reflect, reset, and reconnect with your Rothenberg wealth advisor.

1. 2026 contribution limits

TFSA Limit: $7,000 for 2026

The Tax‑Free Savings Account (TFSA) contribution limit for 2026 remains $7,000, matching 2024 and 2025. For Canadians who have been eligible since TFSAs were introduced in 2009, this brings the total cumulative room to $109,000.

RRSP Limit: $33,810 for 2026

The Registered Retirement Savings Plan (RRSP) 2026 contribution limit has increased to $33,810, up from $32,490 in 2025.

These limits give you the flexibility to grow wealth, either tax‑free (TFSA) or tax‑deferred (RRSP), as part of a thoughtfully structured financial plan.

2. A new year is the perfect time to reassess your goals

Financial planning isn’t static. As life evolves, so should your financial and investment strategy. Early in the year is an excellent opportunity to check whether your goals and contribution plans still make sense.

Here are some life changes that may prompt a review:

Career changes or promotions: Higher income may increase your RRSP contribution room and alter your tax planning needs.

Buying a home: You may need to reprioritize savings between RRSPs, TFSAs, and other accounts.

Growing your family: New dependants often mean updated insurance needs, RESP planning, and adjustments to cash flow.

Retirement planning updates: As you get closer to retirement, your investment strategy and RRSP withdrawal plan may shift.

Changes in financial priorities: New goals, such as starting a business, planning a major purchase, or taking a sabbatical, may require a refreshed approach.

Significant family events: a change in family circumstances or receiving an inheritance may alter financial priorities and require revisions to savings strategies and estate planning.

With contribution limits resetting and life changes potentially altering your financial picture, early-year planning helps you stay ahead rather than reacting later.

3. Why meeting with your wealth advisor matters now

Understanding contribution limits is important, but integrating them into a long‑term plan is where the real value lies. A Rothenberg wealth advisor can help you:

• Maximize both TFSA and RRSP opportunities
• Align savings strategies with life changes
• Avoid over-contribution penalties
• Build a personalized investment plan that supports your evolving goals

As contribution room for both accounts resets each January, now is the ideal moment to set up a review and ensure you’re making the most of the year ahead.

Start the Year Strong

2026 brings fresh opportunities, expanded contribution limits, and a natural moment for reflection. Whether you’re adjusting to new life circumstances or simply fine-tuning your long‑term goals, revisiting your financial plan now can set you up for a more confident and successful year.

If you’re ready to make the most of the new year, book a time with your Rothenberg wealth advisor to review your goals and set yourself up for a successful year ahead.

As the year draws to a close, it’s the perfect time to review your finances and ensure you’re taking advantage of every opportunity to save. A year-end financial checklist can help you optimize tax credits, deductions, and benefits before the deadline. Here are key items to consider:

Pension income splitting — Those who receive a pension may be eligible to split up to 50% of eligible pension income with a spouse

Guaranteed income supplement — If you received the guaranteed income supplement or allowance benefits under the old age security program, you can renew the benefit by filing by the deadline.

Registered retirement savings plan (RRSP) — You have until December 31 of the year in which you turn 71 to contribute to your RRSPs.

Goods and services tax/harmonized sales tax (GST/HST) credit — You may be eligible for the GST/HST credit, a tax-free quarterly payment that helps offset all or part of the GST or HST you pay. To receive this credit, you must file an income tax and benefit return every year.

Medical expenses — You may be able to claim eligible medical expenses that you paid, provided the expenses were made over the 12-month period ending in 2024 and were not previously claimed. This can include amounts claimed for attendant care or care in an establishment.

Age amount — If you are 65 years of age or older on December 31, 2025, and if your net income was less than $102,925.

Pension income amount — You can claim up to $2,000 if you report eligible pension, or annuity payments on your tax return.

Registered disability savings plan (RDSP) — This savings plan can help families save for the financial security of a person who is eligible for the disability tax credit. RDSP contributions are not tax deductible and can be made until the end of the year in which the beneficiary turns 59.

Disability amount — If you, your spouse or a dependent have severe and prolonged impairments in physical or mental functions and meet certain conditions, you may be eligible for the disability tax credit (DTC).

Family caregiver amount — Those caring for a dependent with impairment in physical or mental functions may be able to claim up to $2,616 when calculating certain non-refundable tax credits.

Tax-Loss selling – Tax-loss selling can be a valuable strategy. For more details, check out our recent article on this topic: Potentially lower your taxes with tax-loss harvesting – Rothenberg Wealth Management

Taking time now to review these opportunities can help you reduce your taxes and maximize benefits. If you’re unsure which credits apply to you, contact your Rothenberg Wealth Management advisor for personalized advice.

When building a portfolio that generates income, Canadian investors often weigh the benefits of dividend-paying investments, interest-bearing assets, and capital gain opportunities. While all three can contribute to overall returns, their tax treatment, growth potential, and strategic advantages differ significantly.

What is interest income?

Interest income is earned from fixed-income investments such as:

• Guaranteed Investment Certificates (GICs)
• Bonds
• High-interest savings accounts

Interest income is taxed at the investor’s full marginal tax rate, making it the least tax-efficient form of investment income in non-registered accounts.

Despite its tax inefficiency, interest income has its place. It offers predictable returns, ideal for conservative investors or short-term goals.

Example: John earns $1,000 in interest from a GIC. At a 30% tax rate, he owes $300 in taxes.

What is dividend income?

Dividend income is earned when publicly traded companies distribute a portion of their profits to shareholders. These dividend payments can be made monthly, quarterly, semi-annually or annually, depending on the company.

Your dividends are taxed differently depending on whether they are eligible or noneligible.

Eligible Dividends

• An eligible dividend is a type of dividend that Canadian corporations can pay to shareholders, which qualifies for a preferential tax treatment under Canadian tax law.
• It is paid by Canadian public or private corporations from income that have already been taxed at the general corporate tax rate.
• These dividends are “grossed up” by 38% to reflect the tax already paid by the corporation. This means the amount added to your taxable income is higher than the actual dividend received.
• After gross-up, a federal dividend tax credit is applied to reduce your personal tax liability, so you ultimately pay less tax than you would on a non-eligible dividend.
• Your T5 slip will show you if it is an eligible dividend.

Non-eligible dividends

• Typically paid by small businesses from income taxed at the lower small business tax rate.
• These are grossed up by 15%, reflecting the lower corporate tax paid.
• A smaller dividend tax credit is applied, but it still helps reduce the overall tax burden.

Important Notes

• Foreign dividends do not qualify for the dividend tax credit.
• The dividend tax credit varies by province, so your location affects how much tax you save.

Example: John receives $1,000 in eligible dividends:

• Grossed up: $1,000 × 1.38 = $1,380
• Tax owed: $1,380 × 30% = $414
• Tax credit: $1,380 × 15% = $207
• Final tax: $414 – $207 = $207

What are capital gains?

Capital gains refer to the profit made from selling a capital asset such as a stock, bond, real estate and other investment for more than its original purchase price, also known as its adjusted cost base (ACB).

As of 2025, the capital gains inclusion rate is 50%, meaning:

• Only half of your capital gain is added to your taxable income.
• That amount is then taxed at your marginal income tax rate (federal + provincial).

Example: John sells a stock for $30,000, originally bought for $15,000.

• Capital gain: $15,000
• Taxable portion: $15,000 × 50% = $7,500
• Tax owed: $7,500 × 30% = $2,250

Final thoughts

Keep in mind that dividend, interest, and capital gains income can grow tax-deferred in an RRSP or tax-free in a TFSA. These registered accounts offer powerful tools for maximizing your investment returns while minimizing your tax burden.

For Canadian investors focused on tax-efficient income, dividend-paying investments often deliver greater long-term value. However, the most effective strategy considers your risk tolerance, investment timeline, and account type.

At Rothenberg Wealth Management, we’re here to help you build a portfolio that aligns with your financial goals and optimizes your after-tax returns. A balanced approach that incorporates all three income types, dividends, interest, and capital gains, can help optimize your portfolio for both growth and tax efficiency.

Want to see how different types of investment income are taxed?

Try our Taxes and Investment Income Calculator for a quick comparison: Taxes & Investment Income – Rothenberg Wealth Management

Tax-loss harvesting, also known as tax-loss selling, is a powerful strategy that can enhance the tax efficiency of your investment gains. This strategy involves selling underperforming investments and realizing a capital loss that can then be used to offset capital gains from other investments.

As a brief refresher:

• Capital gains are triggered when you sell an investment for more than the price you purchased it for (profit).
• Capital losses are triggered when you sell an investment for less than the price you purchased it for (loss).
• Capital gains are included in your annual taxable income and taxed at your marginal tax rate. For individuals, the inclusion rate is 50% for capital gains.

While the idea of intentionally selling a losing investment may seem counterintuitive, this can be a smart way to reduce your tax liability or in other words, the amount of taxes you owe.

Tax-Loss Harvesting Example

Suppose you purchase 100 shares of XYZ at $10-per-share, for a total of $1,000. Over time, the price of XYZ falls to $6-per share, and your 100 shares are now worth $600. You choose to sell all XYZ shares for $600 and realize a loss of $400 on your initial investment. This loss is considered a capital loss and can be applied against any capital gains realized in the same tax year, thus reducing your total taxable capital gains.

Say you also realize $2,000 in capital gains in that same tax year. Your $400 loss can be used to offset part of those gains. After netting the capital gains and losses, you would pay taxes on $800 of your earnings at the 50% inclusion rate for capital gains ($2,000 – $400 = $1,600 * 50%).

Had you not used tax-loss harvesting, you would report $2,000 in capital gains and pay taxes on $1,000 (50% of $2,000). In this example, you are reducing your reported capital gains by 20% using tax-loss harvesting.

Key Considerations

The above example provides a simplified illustration of tax-loss harvesting. In reality, most investors hold diversified portfolios with investments across account types, asset classes and sectors that require regular rebalancing and are subject to different tax treatments. This interplay can make tax-loss harvesting even more nuanced. Several other considerations should be kept in mind when tax-loss harvesting.

1. Eligible Investments

Tax-loss harvesting only applies to realized capital gains and losses in non-registered accounts. Losses within registered accounts, such as RRSPs and TFSAs, cannot be used for tax purposes, as gains and losses within these accounts are not taxed until withdrawals are made. In other words, capital losses in registered accounts cannot offset capital gains in non-registered accounts.

Alternative and private investments, such as private equity or private real estate, may also benefit from tax-loss harvesting, though challenges like liquidity, valuation, transaction costs, lock-up periods and differing tax treatments must be carefully considered.

2. Superficial Loss Rule

The Superficial Loss Rule prohibits you from claiming a tax deduction on a capital loss if you repurchase the same or identical investment within 30 days before or after the sale.

The Superficial Loss Rule is an important consideration when tax-loss harvesting, but with careful planning, you can sidestep it using strategies such as waiting 31 days before repurchasing the same investment or buying a similar but not identical investment.

3. Carry-Back & Carry-Forward Rules

Capital losses can be carried back three years or forward indefinitely to offset capital gains in those years.

For example, if you realize a capital loss in 2025, you could carry that loss back to offset any capital gains from 2022, 2023 or 2024 by filing a T1 Adjustment Request. If the loss isn’t used in the current year or carried back, it can be carried forward to offset capital gains in future years.

Final Thoughts

Tax-loss harvesting is often associated with year-end tax planning, as investors try to reduce their tax liability for the current year. However, it can be done throughout the year, especially if there are market fluctuations that create opportunities for harvesting losses. It’s important to work with an experienced financial professional like a Rothenberg Wealth Management Advisor to assess whether you can benefit from tax-loss harvesting and how you can implement this strategy to maximize your portfolio’s tax efficiency and reduce the amount of taxes owed.

As the school year kicks into full gear, it is a good time to discuss the best practices relating to Registered Education Savings Plans (RESPs). First, let’s go over the basics!

RESP Basics

An RESP is generally the best way to save for education for two primary reasons:

1) tax-sheltered investments and
2) the Canada Education Savings Grant.

The total lifetime RESP contribution limit is $50,000 per beneficiary. The beneficiary is the student who will be using the RESP money for their education. Unlike Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP), this limit has no annual contribution limit.

Eligible RESP contributions can earn a 20% matching grant from the government called the Canada Education Savings Grant (CESG) on the first $2,500 contributed to an RESP each year, capping at $7,200 of lifetime CESG per student.

Investment products that can be held in an RESP include the standard ones just like in TFSAs and RRSPs, such as stocks, bonds, mutual funds, ETFs, and more.

When original contribution money is withdrawn from an RESP, it is not taxable! But investment growth and government grants, such as CESG, are taxable to the student when withdrawn. Those taxes apply upon withdrawal, and investment returns, including capital gains, dividends, and interest earned, are tax-sheltered inside an RESP.

Lump-Sum or Regular Contribution?

With the basics rules out of the way, let’s look into some contribution strategies. While contributing the maximum lifetime amount of $50,000 as early as possible may seem attractive to maximize compound growth and have the money grow in a tax-sheltered environment, it means that you are losing out on a lot of CESG money. This is because the CESG only matches 20% of the first $2,500 contributed per year. If you have a large lump sum to contribute to an RESP, another option is to contribute it to a TFSA first and slowly move it over to the RESP as the years go by. Ultimately, the perfect solution for you will depend on your personal situation, which is why our Wealth Management Advisors take the time to get to know your needs and goals.

What if your child doesn’t pursue post-secondary education?

If your child does not continue school after high school and you have been saving in an RESP, then once the RESP’s deadline is reached, the CESG funds received must be repaid in full and your original contributions are returned without penalty. However, the growth on those investments will be taxed upon withdrawal and is subject to a 20% penalty. Because an RESP can remain open for 35 years, there is plenty of time to plan the best way to withdraw funds from an RESP in the event that the beneficiary does not pursue post-secondary education.

One way is to stop RRSP contributions and slowly transfer the balance of your RESP to the RRSP. Transferring money this way means that, up to $50,000, the money will remain tax-deferred and will avoid the 20% penalty. Another way to reduce the impact of this tax and penalty is to withdraw the money during a year when your income is lower than usual.

Finally, it is likely that even if it is not a full university degree, there are plenty of educational programs that could suit your child. College and university courses are not the only ones that quality for funding. Enrolment alone qualifies RESP educational withdrawals, meaning that whether a course is passed or not will not affect your beneficiary’s ability to withdraw funds.

Side Note: Adults

Adults can take advantage of RESPs too! While adults, unfortunately, do not qualify for the CESG grants due to age restrictions, the 35-year tax deferral may be able to help during the years when ou are studying.

There are several rules in place to ensure RESPs are used as intended. But now that you know those rules, you can use RESPs to their maximum potential! We suggest you give us a call: Montreal at 514-934-0586 and Calgary at 403-228-0949 to discuss how to make Registered Education Savings Plans work best for you.

Within the Canadian wealth management industry, flow-through shares (FTS) stand out as a powerful tool for high-net-worth individuals seeking both tax efficiency and exposure to the resource sector.

In this article, we will cover how flow-through shares work, why they are a strategic tax-advantaged investment and who should consider adding them to their portfolio.

What are flow-through shares?

The Canadian government introduced flow-through shares to encourage investment in the resource sector. Certain corporations in this sector — like mining, oil and gas — can issue FTS to help finance their exploration and project development activities. These companies transfer, or “flow through”, their exploration and development expenses to investors, allowing the investors to deduct these expenses from their taxable income. This approach transfers the tax benefits of exploration spending from the company to the shareholder.

Key benefits

The primary appeal of flow-through shares lies in their tax advantages:

• The investment is 100% tax-deductible against your income
• Federal Investment Tax Credit (ITC) of 15% for qualifying mining expenditures
• The reduction of ones taxable income may allow for Old Age Security to be paid rather than clawed back for some individuals

Another advantage of investing in flow-through shares is that it directly supports the expansion of Canada’s resource sector. These investments supply essential funding required for exploration projects, leading to the discovery of new resources and the advancement of Canada’s natural resource industries.

Investment strategy

Flow-through shares are best suited for:

• High-income investors looking to reduce taxable income
• Those with existing diversified portfolios who can tolerate higher risk
• Investors interested in supporting Canadian resource development

Risks and considerations

Despite their tax appeal, flow-through shares carry significant risks including:

• Volatility: Issuers are often junior exploration companies with uncertain prospects.
• Liquidity constraints: Flow-through shares are often less liquid than other types of investments meaning that investors may find it difficult to sell their shares quickly, especially in a down market.
• Tax complexity: The tax benefits associated with flow-through funds are complex and require careful management.
• Regulatory and environmental risks: Exploration projects are subject to changing government policies and community opposition.

Flow-through shares are a high-risk, but potentially high-reward investment. Your wealth advisor is here to help navigate these risks and advise if they may be suitable to include in your portfolio. Your advisor will:

• Assess suitability based on income and risk tolerance
• Navigate the tax reporting requirements
• Monitor the performance and compliance of the issuing company

Conclusion

Flow-through shares offer a compelling opportunity for tax savings and resource sector exposure.  For the right investor, they can be a strategic addition to a well-balanced portfolio. If you’re interested in exploring flow-through shares as part of your investment strategy, contact your Rothenberg wealth advisor to discuss whether they align with your financial goals.

All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the article and your Individual tax situation. Flow Through Shares and other sophisticated products are not suitable for all investors & carry specific risks, inquire with your advisor directly for more information.. Harbourfront Wealth Management Inc is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.

Sources:

How the flow-through share (FTS) program works – Canada.ca

What Are Flow-Through Shares in Canada? Tax Benefits & Ontario Tax Credit

Flow-Through Funds: Essential Guide for Canadian Investors

In this article, we share some considerations regarding this common dilemma to help you decide which option is better for you: investing for retirement or paying down your mortgage.

Contributing to an RRSP and paying off your mortgage are choices that can seem equally important. After all, both address really important aspects of your financial life: your retirement and your estate. The right answer for will depend on your individual circumstances. Let’s take a look at each of these options.

Contributing to your RRSP

Contributing to an RRSP can have both short-term and long-term benefits. Contributions to an RRSP are made on a pre-tax basis, offering a tax benefit in the year the money is contributed. The maximum contribution to a RRSP for 2025 is 18% of your earned income, up to a maximum of $32,490. Any unused portion (also known as contribution room) of this limit can be carried forward to a subsequent year.

Additionally, money invested in an RRSP grows on a tax-deferred basis until withdrawn. Investment options typically include mutual funds, guaranteed investment certificates (GICs), ETFs plus individual stocks and bonds.

Besides the tax benefit of pre-tax contributions to an RRSP, the benefit of compound tax-deferred growth within the account may be the biggest benefit of investing in an RRSP.

Paying off your mortgage

Paying off your mortgage can eliminate one of the biggest monthly expenses in a homeowner’s budget. The issue for most people is where will the money to pay off the mortgage come from?

One strategy is to pay an extra amount towards your mortgage on a monthly basis. This will add to the amount of principal that you are paying down each month. Depending on your mortgage balance and the interest rate, this can help you pay off your mortgage several years earlier than if you made only the required payments each month.

Certainly if your mortgage carries a high interest rate it can make sense to pay it off as quickly as possible.

Issue to consider

Age. One issue to consider is your age. If you are older and closing in on retirement, then working to pay off your mortgage early can make sense. It can be very helpful to your retirement budget to eliminate this monthly payment from your budget prior to retiring.

For someone who is younger, it is often better to focus on maximizing contributions to your RRSP as the tax-deferred growth can then accumulate a large sum for retirement. While the returns will depend upon how you allocate your funds among various investments, the power of tax-deferred compounding of investment returns over time can be incredible.

Rates. When weighing an RRSP contribution versus a mortgage paydown, a huge consideration is also the rate you are paying on your mortgage versus the anticipated rate of return on savings in your RRSP. If your mortgage is locked in at 2.5% and you can get a higher rate of investment, an RRSP may be the route to go.

While it is always better to start contributing as much as possible as soon as possible, the power of compounding can still be a major advantage for workers further along in their careers.

Tax liability. Additionally, contributing to an RRSP offers an excellent tax break each year. This tax benefit can be the single largest tax break many people receive each year.

Liquidity. Another consideration is that money tied up inside of a home that is fully paid off is largely illiquid. While you could take out a home equity loan if needed to tap into some of that equity, this puts you right back in the same position as you were before with having a mortgage payment.

Why not do both?

Perhaps the best strategy is to do both.

Contribute as much as you can to your RRSP to take advantage of the opportunity for tax-deferred investment growth over the longer term. In an RRSP, if invested properly, your investments can help you build a solid nest egg for retirement. In the process, look at your monthly budget and determine if there is an amount that you can put towards paying down the mortgage balance each month.

Everyone’s situation is different of course. A good approach to this situation is to look at your monthly cash flow and determine how much you can contribute to your RRSP and how much you can comfortably allocate towards paying down your mortgage more quickly.

An alternative is to determine how much you are saving in taxes from making your pre-tax contributions to the RRSP and allocate some or all of that money towards paying down your mortgage balance early.

A major consideration here is what the interest rate on your mortgage is versus your expected return on your RRSP investments. For most people the RRSP return over time will likely be higher, but not in all cases.

Conclusion

The decision as to whether to focus on saving in an RRSP or paying down your mortgage will vary among people based on their unique circumstances. Talk with one of our advisors to develop a strategy that makes the most sense based on your situation and your goals.