How to deal with RRSP's (Canada)

[Cam Ellison]

On 03/01/18 04:36 PM, Matthew Pounsett wrote:
> 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.
>
The examples I used were (perhaps over-) simplifications. In practice, I 
actually have a number of stocks and money market accounts within two 
RIFs, like so:

Assets:investments:RIF:Stock1
Assets:Investments:RIF:Stock2
Assets:Investments:RIF:MoneyMarket1
Assets:Investments:RIF:Cash
etc.

A withdrawal from the RRSP/RIF is actually from the cash account within 
the RRSP/RIF subsequent to selling money market shares. Everything is a 
Stock, except the cash account. If you have mutual funds, substitute 
appropriately. I have RIFs, being over 71, but for our purposes here the 
difference between RRSP and RIF is in name only. If there is only one 
financial instrument, then you obviously would dispense with the 
detailed breakdown shown above.

The offset account can't be a liability - that would double the impact 
of the withdrawal and screw up your balance sheet. It pretty much needs 
to be either an Equity or an Expense account. As I think about it more, 
there is a certain logic to the latter, since it was originally Income. 
I may have been doing that part wrong. When I moved everything into 
GnuCash lo, these many years ago, I had to use Equity:Opening Balances 
as the offset to each item within the RRSP, and simply continued the 
practice, with a different sub-account

I am not an accountant, either, but perhaps a member of this list who is 
might weigh in on this last point.

I think if your employer contributes to your RRSP or a fund or other 
instrument within it, that probably needs to be dealt with as Income. 
Also, it may count as a taxable benefit.

Cheers

Cam