RRSP’s vs. TFSA

In Canada we have two great savings vehicles sanctioned by the government.  We have the venerable RRSP (Registered Retirement Savings Plan) introduced in 1957 and the more recent TFSA (Tax Free Savings Account) introduced in 2009.  What are the pros and cons of each and when should you use one or the other or both?

RRSP - Facts

This year (2018 Tax Year) you can contribute an amount equal to 18% of your Earned Income from the prior year (2017) up to a maximum of $26,230.  This amount will be reduced if you are contributing to a company pension plan where you work.

If you have not contributed in the past, or not contributed the maximum, the unused contribution room from past years is accumulated and can be used in the current year.

The amount you are able to contribute to your RRSP in 2018 is shown on your Prior year (2017) Notice of Assessment in the RRSP/PRPP Deduction Limit Statement.

This is the also the amount you can deduct from your Taxable Income in 2018 and reduce your Income Tax owing.

When it comes time to withdraw from your RRSP (in retirement or at any other time) all amounts taken out are taxable. Income Tax will be paid at your marginal rate.

TFSA – Facts

This year (2018) you can have made cumulative contributions totalling no more than $57,500.  The amount you may contribute is cumulative with yearly maximums as shown below

2009 – 2012             $ 5,000/yr                 $20,000

2013 – 2014             $ 5,500/yr                 $11,000

2015                         $10,000/yr                $10,000

2016 – 2018             $ 5,500                     $16,500

Total Cumulative Contributions allowed:    $57,500

The amounts contributed ARE NOT tax deductible like RRSP contributions.  They are made in after tax dollars.

Money deposited into your TFSA may be invested in pretty much anything that would qualify for an RRSP investment. (stocks, bonds, mutual funds etc.)

When it comes time to withdraw from your TFSA, ALL amounts withdrawn are TAX FREE. Yes even the income earned on the investments in the TFSA

Marginal Tax Rate – What is That?

In Canada we pay income tax on a graduated scale.  In Ontario it looks like this:

Taxable Income                 Tax Owing

0 - $15,087                             $0 Plus  15.00% on excess

$15,088 - $19,819                     $492  Plus 25.10% on excess

$19,820 - $42,960                     $1,680  Plus 20.50% on excess

$42,961 - $46.605                     $6,319  Plus 24.15% on excess

$46,606 - $75,653                     $7,200  Plus 29.65% on excess

$75,654 - $85,923                     $15,812  Plus 31.48% on excess

$85,924 - $89,133                     $20,133  Plus 33.89% on excess

The Marginal Tax rate is the rate paid on the last dollar of taxable income.  From above we see that if your taxable income is $87,000 the marginal tax rate is 31.48%.  For every dollar earned above the $87,000 you pay 31.5 cents in tax. (until you reach the next level, then you pay more!)

Which Should You Invest In, RRSP or TFSA?

The answer is “it depends”.  Typical accountants answer! There are a few factors to consider.

First, what is your marginal income tax rate going to be when you plan to take money out of your RRSP or TFSA?  Why does this matter?

When your taxable income is low, and you’re looking at paying little or no tax, it does not make sense to contribute to an RRSP.  Your marginal tax rate is probably in the neighbourhood of 25%, meaning you’d save $250 in income tax for each $1,000 you put in an RRSP. The issue  is that when you are retired you’ll probably have a much higher income than you do now and hence a higher marginal tax rate. It would be reasonable to anticipate a marginal tax rate of 35% (at least) and so for each $1,000 you withdraw you would pay $350 in tax.

It doesn’t make sense to defer income until a time when you will pay more tax on it!  This is the time to top up your TFSA as much as allowed and to keep any other savings in a non-registered investment account.  You can always transfer it later to either a TFSA or RRSP.

As your taxable income increases it makes more and more sense to contribute the maximum to your RRSP.  As your marginal tax rate increases the savings in income tax become substantial. You could now be looking at a marginal income tax rate of 45% (or more) which means that you save $450 in income tax for each $1,000 that you contribute.  But when withdrawing in retirement at the anticipated 35% marginal tax rate you’ll only pay $350 income tax for each $1,000 you withdraw. This being the whole point of the RRSP, allowing you to defer paying tax on a portion of your income until a time when your marginal tax rate is lower!

So generally speaking you want to contribute to your TFSA and non registered account until your marginal tax rate matches or exceeds your anticipated marginal tax rate at time of withdrawal.

At this point you want to start contributing to your RRSP.  You would be very wise to take any refund generated by your RRSP contribution and use it to max out your allowable contribution to your TFSA.

If, throughout your working life, you always maximize your RRSP and TFSA contributions, you will have no financial concerns about retiring.

Other Things to Think About

RRSP’s must be converted to RRIF’s (Registered Retirement Income Funds) or annuities in the year you turn 71.  RRIF’s must pay out a minimum percent of the total value per year, so if you have a large amount saved up in your RRSP it will start becoming taxable income in you’re 72nd year.  This can increase your income, and marginal tax rate depending on the size of your RRSP/RRIF investments.

On the other hand TFSA’s do not need to be converted.  Of course, any non-registered investments do not need to be converted either.

A reasonable balance of your retirement investments between registered and non-registered accounts is wise and the best solution for the investor is one worked out in concert with their investment manager(s) and tax advisor.

Still not sure whether you should use a TFSA, RRSP or both? Reach out to your investment manager or advisor or contact our financial consultant at finance@omniworxinc.ca.

Disclaimer: Numbers, tax rates, suggestions and other details here are not exhaustive and should not be construed as investment advice.  The information provided is for discussion purposes only and is meant to provoke interest in the reader and motivation to pursue their personal investment/retirement goals in concert with their investment advisor(s)/manager(s).




Design Thinking for Small Business

If you are keeping up with the latest trends in business then over the past few years you have likely heard the term Design Thinking. Design Thinking is a term for the Methodology used by designers, including OmniWorx Inc’s designers, to help them solve problems for clients but it is now being used in many areas of large companies such as Apple, Uber and Nike to help them solve problems. The steps of Design Thinking are Empathizing with your Customer, Define the Problem, Ideate Possible Solutions, Prototype and Test. How can Small and Mid-sized businesses harness the power of Design Thinking to put them ahead of their competition?

Let’s take a look at the DesignThinking Methodology and a situation where we could apply it to a Small Business. Working with your Graphic Designer you can easily implement Design Thinking into any design project. For example, If the owner of a restaurant wanted to utilize the methodology to bring in new customers

Image Author/Copyright holder: Teo Yu Siang and Interaction Design Foundation. Copyright terms and licence: CC BY-NC-SA 3.0

Image Author/Copyright holder: Teo Yu Siang and Interaction Design Foundation. Copyright terms and licence: CC BY-NC-SA 3.0

Empathize

Have you heard the saying that you don’t truly know a person until you’ve walked a mile in their shoes? That saying rings true when you are trying to solve a problem for a potential customer. To be able to solve a problem you need to know and truly understand the pain points your customers face. Are there too many actions that a customer needs to take to complete a sale? Is the call to action legible to your customers? Find out what issues block your ideal customer from buying your product or service.

To empathize, our restaurant owner could gather information from existing and potential customers through speaking with them directly or through surveys about what their pain points are, what might be stopping them from coming in. Are they getting lost trying to find the establishment?

Define

Taking the insights that you have gathered from your Empathizing, define a problem, or many problems, that your design solution needs to solve. Defining a problem helps you justify both to yourself and others why you designed something the way you did. For example, making text larger point sizes and keeping with a medium weight typeface for users/customers who may be hard of sight. What will your key performance indicators be for success?

Based on the research our owner conducted they found that a major problem and complaint they had was that people were not able to find the establishment and were often calling to get directions. This took the staff time away from customers as they had to field these calls often. The problem statement becomes “How can we make clearer directions for new customers to find our establishment?”

Ideate

This is the stage where you start thinking about how you could design a solution. A Problem Statement or Design Brief has been created from the work done in the first two stages and you or your designer can start proposing solutions that solve your problem or fit with your business.

Now that our owner has a problem statement, “How can we make clearer directions for new customers to find our establishment?”, they can work with a Graphic Designer to come up with solutions to help solve this problem.

Prototype

This is the stage where you design one of the solutions you explored in the previous stage and put it out to your market. You can design and launch as many solutions as you think is feasible to test one solution against another or just release them one at a time depending on your goals. Your designer will be able to recommend a direction that fits best with your project.

The Graphic Designer will come up with some graphic solutions to this problem which could be things like a more precise map for the website or different signage outside the establishment.

Test

The final stage is to test your prototype(s) against your key performance indicators to see if you get the results that you were looking for. If you do than continue using that product, if not then you may need to go back to any of the previous steps to review the project.

Working with the owner the Graphic Designer can implement one or more of his solutions and test the results. Sometimes more ideation and prototyping may be necessary to perfect the final product but the final product will help to grow the business


A professional Graphic Designer and/or Design Firm can help you throughout this iterative process. If you are thinking of implementing a new marketing tool or updating an old one OmniWorx Inc. can help. We specialize in working with small businesses to elevate their image through Design and Design Thinking. Contact us at design@omniworxinc.ca for more information on how we can help.

What’s Been Happening - Summer 2019

The Pintys Grand Slam of Curling - Players Championship

Although it seems strange to be writing about Curling on the first day of June we have a good reason. All three of OmniWorx Inc’s Principals spent a week in April volunteering at the Players Championship which is part of the Grand Slam of Curling Tour. The Players Championship happens every April at the former Maple Leaf Gardens now known as the Mattamy Athletic Centre and is part of Ryerson University.

As volunteers, Phil, Mary and Jack spent most of their time watching some of the top curlers in the world face off from the best seats in the house. Right behind the scoreboards for the sheet. As timekeepers and scorers they sat right on the ice level and had a really great perspective on the game and the players.

“I still can’t get over the feeling when I’m only feet away from curlers like Rachel Holman, Jennifer Jones and Brad Gushue. … I found it really humanizes these larger than life people I’ve seen on TV almost all my life.” ~ Jack Henry | Principal, Graphic Design

Volunteering for this event is something that the Principals enjoy doing together every year and they all look forward to having the opportunity to do it again in 2020!


HOW Design Live in Chicago

IMG_7835.jpeg

In the second week of May Jack attended the HOW Design Live Conference in Chicago. He attended sessions on Brand Templating, Marketing as a Freelancer, Networking, Presenting, Using LinkedIn to Build a Brand and How to Continue to Cure Clients Pain. Jack also attended a session that presented Logo Lounges 2019 Logo Trend Report. Jack connected with a number of Creatives south of the border including a designer at a startup making an app that allows businesses to build their own smartphone app. He also connected with a former connection who had moved to the city last year.

“It was a great experience to go.” said Jack, “I think that it gives me a lot to bring back to our clients not just from the sessions I attended but I also am bringing back a number of new potential suppliers that will allow OmniWorx to expand and provide our clients with an expanded range of services and capabilities.” These suppliers included brand templating software, revision software, companies that print labels directly on glass bottles and companies the produce expansive fabric displays.

It wasn’t all business in the windy city though. Jack had a little bit of time to explore the city including checking out Chicago icons such as the River Walk, the Willis (Sears) Tower and Cloud Gate, aka The Bean. By recommendation, Jack also took in a Architectural River Tour which was a great introduction to the city on his first afternoon.


Photo Gallery

Introducing OmniWorx Cares

Since our founding, OmniWorx Inc. has been committed to working with our local community by both working with small businesses as clients and suppliers but also by supporting community events such as Guildwood’s Hallowe’en Haunt and being part of community initiatives such as the Guildwood Village Community Association’s Flag Design Committee.

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Client Feature

Muddy Paws in the Guild is a locally owned pet store and grooming salon located right around the corner from OmniWorx Inc's head office. Owned by another local resident Colleen Zuber and her son Derrick, Muddy Paws has been serving east Scarborough for over 25 years since 1993, more than 10 of which have been in the Guildwood Village community.

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New Studio Team Member

As you may already know, OmniWorx’s Design Studio was fostering a cat named Sophie from Forgotten Ones Cat Rescue. It is with mixed emotion that we would like to announce that Sophie found her forever family just before the holidays. We are excited to announce, however, that we have a new furry studio team member with us named Freya, also from Forgotten Ones Cat Rescue.

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RRSP's vs TFSA's

In Canada we have two great savings vehicles sanctioned by the government.  We have the venerable RRSP (Registered Retirement Savings Plan) introduced in 1957 and the more recent TFSA (Tax Free Savings Account) introduced in 2013.  What are the pros and cons of each and when should you use one or the other or both?

Read More