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Using RRSPs To Offset Capital Gains

Question: “I just realized a $140 000 capital gain from a sale of land.  I’m thinking of buying RRSPs to offset my immediate tax bill.

My question is how much should I contribute to an RRSP?”

If you realized a capital gain of $140,000 only ½ or $70,000 would be included in income this year.  Thus to reduce the impact of the gain you would need to make a contribution of $70,000 to an RRSP. Of course you must have the RRSP contribution room available [1].

Your RRSP contribution room for 2008 is listed on your 2009 Notice of Assessment or Reassessment from the CRA.  If you in fact had $70,000 available in room, you could eliminate the tax impact of the gain. Be aware that if you reduce taxes payable to zero, you may still trigger the alternative minimum tax given the right circumstances.