Entering RRSP Transaction in GnuCash

Jair “Jay” Ferreira Jr. jfjunior at jfjunior.ca
Sun Apr 12 20:48:40 EDT 2015


   Thanks for the detailed explanation Edward, really appreciate the time
   you put into it. I will work something out as I have a clear idea now.

   cheers

   From: Edward Doolittle <[1]edward.doolittle at gmail.com>
   Date: Sun Apr 12 2015 19:11:11 GMT-0400 (Eastern Daylight Time)
   To: jfjunior <[2]jfjunior at jfjunior.ca>
   Cc: gnucash-user <[3]gnucash-user at gnucash.org>
   Subject: Re: Entering RRSP Transaction in GnuCash

   Correction: my second last paragraph, last few words should say "they
   should also count as taxable income". :-)

   On 12 April 2015 at 16:56, Edward Doolittle
   <[4]edward.doolittle at gmail.com> wrote:

   If they arrived in Assets, they had to come from somewhere (double
   entry accounting). The rule of thumb I use is that equity is for
   something that you always had, at least since you started using
   GnuCash, so I think equity is not the right place for the other leg of
   the transaction. It would definitely not be good accounting practice to
   use equity in this case, as far as I know. As for the other options,
   you are not moving the asset from another asset account; you are not
   receiving a rebate on an expense you already made; you are not
   incurring a liability (you didn't borrow money for the contribution).
   That leaves income.
   There tends to be some confusion about the way the word "income" is
   used. The confusion is resolved if you separate taxable income from
   non-taxable income. The RRSP contributions may not be "income" in the
   sense of Revenue Canada income, so the right place to take the income
   from is a non-taxable income account.
   However, the question you should really be asking is not what the
   transactions really mean, but, "How must these transactions appear on
   my income tax filing?" I don't know the answer to that question, but
   you or your accountant would, and perhaps others on this list could
   provide some guidance. The answer to that question determines the
   accounting treatment you should be using. So for example, It may be
   that Revenue Canada wants to see all the contributions as regular
   income, and then the deposits to the RRSP account as deductions, in
   which case each transaction would then have four legs:
   DR: Assets:Investments:EmployerRRSPContrib $100
   CR: Assets:ImaginaryHoldingAcctManagedByEmployer $100
   DR: Assets:ImaginaryHoldingAcctManagedByEmployer $100
   CR: Income:Taxable
   Then at the end of the fiscal year you look at all the transactions for
   the year in Income:Taxable and see the number you should report to
   Revenue Canada as your taxable income, and you look at all the
   transactions for the year to Assets:Investments:EmployerRRSPContrib and
   see (part of) the deduction for RRSP contributions.
   On the other hand, if Revenue Canada doesn't count your employer RRSP
   contributions as taxable income offset by deductions, then you should
   use the method I first suggested. On second thought, what I first
   suggested is probably wrong, because there are annual limits to RRSP
   contribution, and I think employer contributions count toward that
   annual limit. So the contributions should count in your deductions on
   your tax filing, which means they should also count as income.
   I do something similar with my pension plan, only in my case the
   holding account is not imaginary; my employer makes pension
   contributions to that account twice a month, and they are only
   forwarded to the pension plan once a month. So in my case the transfer
   from the holding account to the pension plan occurs at a different time
   from the deposits to the holding account, so I can't bundle all the
   legs together into one transaction. I use three transactions.

   On 12 April 2015 at 09:29, jfjunior <[5]jfjunior at jfjunior.ca> wrote:

   I see what  you are saying, however here is where I've a problem.
   The deposit made by my employer to my RRSP account is not part of my
   paycheque, is a direct transaction from my employer to my RRSP account.
   So for me to see these individual transactions - which are in company
   shares by the way - I need to logon to my SunLife account or wait for
   my investment quarterly e-statements.
   The only transaction which shows up on my paycheque is my own
   contribution to my RRSP account - EmployeeRRSPContrib -  as that one is
   deducted from my paycheque.
   Would it be a good accounting practice to setup these transactions as
   "equity - open account balances" or "equity - retained earnings"? How
   would that affect my reporting?
   My main concern here is that these deposits are showing up as "income"
   and they are not income yet, just assets for the time being.
   i.e.
   DR: Assets:Investments:EmployerRRSPContrib - $100.00
   CR: Equity:Opening Balances - $100.00
   or
   DR: Assets:Investments:EmployerRRSPContrib - $100.00
   CR: Equity:Retained Earnings - $100.00
   Thanks

   On 12 April 2015 at 02:41, Edward Doolittle
   <[6]edward.doolittle at gmail.com> wrote:

   From Income:MyName:Non-taxable:RRSP-employer, or something similar.
   Then you should use that same account in the income side of your
   paycheque split.

   On 11 April 2015 at 23:42, jfjunior <[7]jfjunior at jfjunior.ca> wrote:

   Thanks Edward,
   Breaking the gross income in taxable and non-taxable is a good idea.
   Now from the $1200.00, $1000.00 is what I get net in my account, and
   the sample of 2 x $100.00 entries are taxes, etc. I have about 7
   deductions (insurance, cpp, ei, charitable donations etc...which I
   didn't list).
   Any idea how I should proceed with the first transaction, when my
   employer makes a deposit to my RRSP account directly? :)
   DR: Assets:Investments:EmployerRRSPContrib - $100.00
   CR: Income:MyName:RRSP - $100.00
   Thanks again.
   Jay

   On 12 April 2015 at 01:19, Edward Doolittle
   <[8]edward.doolittle at gmail.com> wrote:

   In the last transaction, you should break your gross income into two
   parts: taxable ($1200) and non-taxable ($500, corresponding to RRSP
   contribution). Furthermore, maybe not everything in the $1200 is
   taxable.  Paycheques typically have multi-way splits where both the
   credits and debits are split.

   On 11 April 2015 at 14:34, jfjunior <[9]jfjunior at jfjunior.ca> wrote:

     Hi everyone,
     I've edited my original post for more clarity.
     I'm wondering if someone can help me with a question about the
     proper way to
     register a transaction where my employer makes a direct contribution
     to my
     RRSP account.
     RRSP is more or less the Canadian equivalent of the USA 401(k) and
     as such
     is a Retirement Fund. Basically my employer makes a biweekly
     contribution to
     my RRSP account. For now I'm registering these transactions as an
     Income,
     however this is not correct because RRSP contributions will only be
     considered  income when I have access to the funds, at which time I
     will pay
     Income Tax on the value I withdrawal from my account.
     This is the way I'm entering my employer RRSP contributions to my
     RRSP
     account in GnuCash, which I think is wrong:
     DR: Assets:Investments:EmployerRRSPContrib - $100.00
     CR: Income:MyName:RRSP - $100.00
     Now if I make, for sake of argument,  a withdrawal of $500.00, I
     will enter
     the transaction in GnuCash as as DR to EmployerRRSPContrib or
     EmployeeRRSPContrib - depending from which account I'm making the
     withdrawal
     from (my own contributions or my employer contributions).
     The example below assumes the withdrawal is from my Employer's RRSP
     Contribution account. Note that I'm paying 10% Income Tax on the
     total value
     of the withdrawal.
     DR: Expenses:Taxes:Income Tax Investments - $50.00
     DR: Assets:Current Assets:ChequingAccount - $450.00
     CR: Assets:Investments:EmployerRRSPContrib -                $500.00
     I also make RRSP contributions directly from my paycheque, which I
     register
     in GnuCash this way:
     DR: Assets:Current Assets:ChequingAccount:          $1000.00
     DR: Taxes and Deductions:Expense01                      $100.00
     DR: Taxes and Deductions:Expense02                      $100.00
     DR: Assets:Investments:EmployeeRRSPContrib:         $500.00
     CR: Income:Salary:MySelf (Gross Income)
     $1700.00
     So the issue here is that the first transaction if fundamentally
     incorrect
     as I cannot consider the RRSP contribution from my employer as an
     income
     yet, since I've not accessed the funds and paid income taxes on it.
     I would appreciate any input, so I can get this right.
     Thank you very much everyone!
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   --
   Edward Doolittle
   Associate Professor of Mathematics
   First Nations University of Canada
   1 First Nations Way, Regina SK S4S 7K2
   « Toutes les fois que je donne une place vacante, je fais cent
   mécontents et un ingrat. »
   -- Louis XIV, dans Voltaire, Le Siècle de Louis XIV, Chap. XXVI

   --
   Simplicity is the ultimate sophistication.

   --
   Edward Doolittle
   Associate Professor of Mathematics
   First Nations University of Canada
   1 First Nations Way, Regina SK S4S 7K2
   « Toutes les fois que je donne une place vacante, je fais cent
   mécontents et un ingrat. »
   -- Louis XIV, dans Voltaire, Le Siècle de Louis XIV, Chap. XXVI

   --
   Simplicity is the ultimate sophistication.

   --
   Edward Doolittle
   Associate Professor of Mathematics
   First Nations University of Canada
   1 First Nations Way, Regina SK S4S 7K2
   « Toutes les fois que je donne une place vacante, je fais cent
   mécontents et un ingrat. »
   -- Louis XIV, dans Voltaire, Le Siècle de Louis XIV, Chap. XXVI

   --
   Edward Doolittle
   Associate Professor of Mathematics
   First Nations University of Canada
   1 First Nations Way, Regina SK S4S 7K2
   « Toutes les fois que je donne une place vacante, je fais cent
   mécontents et un ingrat. »
   -- Louis XIV, dans Voltaire, Le Siècle de Louis XIV, Chap. XXVI

References

   1. mailto:edward.doolittle at gmail.com
   2. mailto:jfjunior at jfjunior.ca
   3. mailto:gnucash-user at gnucash.org
   4. mailto:edward.doolittle at gmail.com
   5. mailto:jfjunior at jfjunior.ca
   6. mailto:edward.doolittle at gmail.com
   7. mailto:jfjunior at jfjunior.ca
   8. mailto:edward.doolittle at gmail.com
   9. mailto:jfjunior at jfjunior.ca
  10. http://gnucash.1415818.n4.nabble.com/Entering-RRSP-Transaction-in-GnuCash-tp4677764.html
  11. mailto:gnucash-user at gnucash.org
  12. https://lists.gnucash.org/mailman/listinfo/gnucash-user


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