How to deal with RRSP's (Canada)

[Matthew Pounsett]

I am not an accountant.. or even a bookkeeper.. but here's how I deal with
RRSPs.


>
>> For me, the RRSPs have been converted to Income Funds, but the principle
> and procedure are still the same. Contribution is straightforward: from a
> Current Asset account to the RRSP, like this:
>
> Assets:Current Assets:Chequing Account        $5,000
> Assets:Investments:RRSP                $5,000
>
>
RRSPs are investments–typically mutual funds–and not savings accounts (at
least, every RSP account I've ever had has been presented that way: as X
units worth $Y per unit).  So, when I buy in to my RRSPs it shows in my GC
books as a purchase of shares of a mutual fund.  Transfers out as a sale of
shares.



> Withdrawal is more complex, because you have to show Income, Withholding
> Tax, the receiving Account, and the RRSP account, so using an Equity
> account for RSP/RIF withdrawals is needed to balance, like this:
>

It only needs to be more complex if you're trying to use GC to calculate
your tax for you.  If that's the case, then there's additional complexity
on both the purchase and sale of RRSP shares.  On purchase, you need to
reduce your income, but I'm not sure what that would be balanced against.
The most likely prospect seems to me to be a liability, probably.   On sale
there's no withholding, or any immediate tax activity.. that all comes at
the end of the year when you calculate your taxes.  This makes sense if you
think about the fact that (assuming you purchase RRSP shares from out of
your assets) there was no negative change to withholding when you bought
the RRSP shares in the first place.  That only occurs if your employer is
buying shares on your behalf pre-tax, which will still work out, because
that immediately reduces whatever you would have put in your income
(salary) account.

So on purchase of RRSP shares you'd reduce your effective income and
increase an offset (liability?) account.  On sale, do the reverse until
your chosen offset account hits zero, and then any other withdrawls are new
income (gains on the investment).  I believe the rest should come out in
the wash (tax forms).  The only question in my mind is what to balance the
income account against.. and I'm afraid for that I only have guesses.