Besides being “call to action” time, RRSP season is a time when advisors can offer some value-added advice and service to clients to help them make the most of their RRSPs.

Advisors who already have their clients in the habit of making RRSP contributions on a monthly basis or lump sums early in the taxation year can help their clients apply to the government to have their taxes reduced at source, says Jamie Golombek, vice president of tax and estate planning at AIM Funds Management Inc. Rather than waiting for their tax refunds every year, clients can enjoy fatter pay cheques all year round.

“A tax refund is a sign of poor tax planning,” says Golombek. “Depending on when they make their RRSP contributions, your clients are essentially lending money to the government on an interest-free basis for up to a year and a half until they finally get their refund.”

To apply to have income tax reduced at source, taxpayers must fill out a T1213 form every year. It is available for download from the Canada Revenue Agency Web site (www.cra-arc.gc.ca/formspubs).

Golombek suggests advisors can help by printing off a supply and having them handy when meeting with clients. Clients can fill out the forms at the same time as they are completing other documents during their annual reviews.

It takes four to six weeks to get an approval letter from the CRA, says Golombek. Your client’s employer is then required to reduce the taxes that come off each cheque, leaving your client with more money in hand.

But the extra money doesn’t do much good if it’s frittered away in additional spending, Golombek warns. He recommends an automatic savings contribution plan be set up, or an existing one be adapted to the bigger pay cheque.

AIM Trimark’s advisor Web site offers a calculator that can help advisors determine how much money can be freed up per pay period, based on a client’s income level, province of residence and tax rate.

One of the problems that hampers Canadians in maximizing their RRSP contributions is the difficulty in coming up with the money after other more urgent priorities have been met, says Patricia Lovett-Reid, senior vice-president at TD Waterhouse Canada Inc. But small savings on a regular basis can go a long way to filling up the retirement fund, she maintains.

For example, $5 spent a day on fancy coffees adds up to $25 a week, $100 a month or $1,200 a year. Taking public transit can save $10 a day in parking expenses. Turning your thermostat down by one degree can shave a significant amount off a heating bill.

Again, the key is not to allow these savings to go anywhere except straight into an RRSP, and an automatic contribution plan is the best route, Lovett-Reid says.

“There are a lot of little things people can do to free up capital, and they don’t have to reduce their enjoyment of life,” she says. “It’s not about being miserable; it’s about making wise choices. People need to live for today, but they can’t spend as though there’s no tomorrow.”

Many clients don’t realize that RRSP contribution limits are rising, and may need new strategies to come up with the $16,500 allowable contribution for the 2005 taxation year, and the $18,000 allowed in 2006, particularly if they also have unused contribution room from the past.

Sandy Cardy, vice president of taxation and estate planning at Mackenzie Financial Corp. in Toronto, says borrowing can make sense at today’s relatively low interest rates, especially if the client is in the top marginal tax bracket and plans to repay the loan within one year. Various institutions offer low-interest RRSP loans, and advisors can help their clients find the best rate. Clients can often apply online, right from the advisor’s office.

Those clients who prefer not to borrow, may want to consider making an RRSP contribution “in kind,” by transferring securities held elsewhere. The security does not have to be sold to switch into the RRSP account, but it is considered a deemed disposition by CRA. If there is a capital gain, the investor will be liable for the income taxes. If the security has gone down in value since the investor first bought it, Cardy suggests that it be sold and the cash proceeds put into an RRSP, then reinvested.

@page_break@“There is a double standard at the CRA when it comes to gains and losses when a security is transferred to an RRSP,” Cardy says. “A gain on a deemed disposition is taxable, but a loss cannot be used to offset capital gains on other securities sold in the same year unless the security being transferred is actually sold. The net loss for the year can then be carried forward indefinitely to be applied against future capital gains, or carried back three years.”

Cardy suggests that the deduction of the RRSP contribution can also be deferred until later years, if the client expects to be in a higher tax bracket then.

“It’s wise to get the money in an RRSP and enjoy the benefits of compounding,” Cardy says. “But if a client anticipates being in higher marginal tax bracket in the future, he or she may want to play with the timing of the deduction.”

Once clients have put their money into their RRSPs, advisors play an important role in how it’s allocated. Foreign content is completely unrestricted this year, and although the Canadian market has been on a tear for the past few years, some attractive valuations are available in other markets around the globe.

It may seem counterintuitive to take profits out of a hot market, but an advisor can provide a useful service by helping clients set up appropriate asset allocation frameworks, and then sticking with those allocations by rebalancing assets on a regular basis.

“I’m warning my clients away from the Sunday brunch special,” says Bryan Snelson, a financial advisor with Raymond James Ltd. in Mississauga, Ont. “When you order seafood fritatta on Sunday morning, you’re often getting last night’s fish. You don’t want to make the same error from an investment standpoint; you must be careful not to go overboard on last year’s hot play.

“There is a greater margin of safety in something that’s just starting to percolate,” he adds. “It represents better value.”

With Canadian oil and gas stocks the high rollers of last year, they now make up a disproportionately high percentage of some portfolios, Snelson says.

He still likes the long-term outlook for oil and gas stocks and thinks some representation is warranted, but he endorses the policy of taking profits on the way up and that means trimming back at this point.

By the same token, many clients may be overweighted in Canada. He recommends rebalancing to increase their exposure to foreign markets, because no single market leads the way forever. IE