Investment Q&A

Q: Peter's comments about RRSPs and RIFs are from an individual taxpayers prospective. If we look at the design and take a country wide perspective it is much different. If we assume the money put into an RRSP and the tax refund earns a return of x% and we can assume the money goes in a Y% tax rate and is taken out of the RRSP/RIF at a Z% tax rate, the end result is that the money is the RRSP/RIF is totally tax FREE as the tax is balanced by the earnings on the tax refund. It does not matter what X, Y and Z are. Note that this is looking at the country as a whole. Some will earn more X and some less but the average of the whole country will be X and the average tax rates will be Y and Z and some will chose to spend their tax refund but eventually the money will end up with someone who invests it. So the entire RRSP program is essentially tax free money for the economy over the programs' life. I've done the numbers back and forth and it always turns out the same way. So if you save the tax refund, invest it, pay tax on it, it will eventually pay the tax on your RRSP withdrawals, "on average".