How to grow the famous $ 500?

We probably won’t see $ 500 from the Legault government pass. For many households, the check will quickly be swallowed up by a flood of day-to-day expenses, or it will be used to pay for a pending purchase or repair.

We’ll end up with the conclusion that we can’t get very far with 500 dollars. I challenged myself to prove otherwise.

It works on a tax credit, a bonus from the boss, a gift from Aunt Jeanine, a lottery win, in other words, on money, whatever its source.

I saved the best for the latter.

Credit card

First, the important advice. If you have a credit card balance, paying off that long -term debt is where the $ 500 should go. Credit cards charge 20% interest, or $ 100 per year for every $ 500. To the surprise of the final budget, we can improve our balance by $ 600.

The RESP

Parents, if you have not yet opened a Registered Education Savings Plan for your child, now is your turn. If you’ve done this before, but you haven’t contributed the most, here’s a place to drop Eric Girard’s gift.

An RESP contribution entitles you to a 30% government grant. At $ 500, we can get an additional $ 150. The $ 650, as long as they are invested, can grow tax -free, until your child enrolls in CEGEP. That’s what I call “easy money”.

The charitable donation

I read in The newspaper that taxpayers with a lot of freedom plan to donate $ 500 to a charity. The beauty of the gesture is rewarded with tax benefits.

With a donation of $ 500, $ 230 will be returned to you next year in the form of a tax credit. In total, it still earns $ 730, two-thirds of which goes to fund a goal you love. It’s like the multiplication of loaves.

RRSP sponsored by labor

This is where the fun begins, but I first need to refresh your memory on a concept I occasionally discuss in this column, the “marginal effective tax rate” (METR).

The METR represents, for every dollar of additional income earned, the tax paid along with the less money received from socio-fiscal programs. We think here of family allowances, the GST credit, the solidarity credit, and so on. It all goes down when the salary improves, and conversely, government support goes up when you declare less income.


METRs are higher than official tax rates, especially for middle-class families. They usually exceed 50% and can reach 90% in severe cases. This means that for every dollar of extra wage, there may be as little as 10 cents left in the worker’s pocket, after taxes and miscellaneous allowance losses.

This is where a contribution to the RRSP can be very profitable, especially to a workers ’fund (let’s say the CSN Fondaction, the FTQ Solidarity Fund no longer accepts contributions except through deductions in salary). In addition to a tax deduction, the RRSP contribution to this type of fund entitles you to a 30% tax credit.

Money and double

Typical case: two paid parents of two young children, household income of $ 80,000 (split 60/40). The METR is limited to 55%. If each couple contributes $ 500 to a labor-sponsored RRSP, they will return $ 850 together. So they end up with $ 1,850 after a year, including $ 1,000 growing into a tax shelter, the RRSP.

Another more specular example: a couple with three young children, and a single salary of $ 55,000 to support all these beautiful people. This household has a disposable income of nearly $ 70,000 thanks to family allowances (it receives more money from governments than it pays in taxes). His METR has reached 76%! If he pays two $ 500 amounts into a Fondaction RRSP, he can recover 76% of this amount, plus a 30% tax credit, or $ 1,060!

Two checks for $ 500 turned out to be $ 2060 in total!

Such a family would benefit from repeating the operation annually (they must put the maximum, $ 5,000 per year, into a labor-sponsored RRSP fund), but let’s see what it can do through various other strategies, with donations and RESP deposits.

The following year, therefore, the family distributed the $ 1,060 refund generated by the $ 1,000 RRSP contribution as follows: $ 530 as a donation to the SPCA and a payment of $ 530 to the children’s RESP. He received a tax credit of $ 245 for charitable donations and grants of $ 159 for RESP contributions.

Final number:

  • RRSP: $ 1,000 growing tax-free, taxable on withdrawal.
  • RESP: $ 689 valued away from tax authorities, part of which will be taxed on withdrawal into the hands of youth.
  • Credit: $ 245 (refundable on one of the two vehicles mentioned above).
  • And a donation of $ 530 to the SPCA.
  • Total: $ 2,464.

Thanks Eric Girard!

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