What is a Deferred Tax?

by Craig Anthony

0 min read

Deferred taxes are current tax payments that you push into the future, often via an investment or retirement account. Tax deferral has two primary advantages:

  • Due to inflation, a dollar today is worth more than a dollar tomorrow, so it’s better to pay in the future.

  • Tax deferral gives you control over when you pay your taxes, instead of being controlled by the Canada Revenue Agency.

In addition to other investment income strategies, registered retirement savings plans and registered education savings plans are the most commonly used avenues of tax deferral for most Canadians. The money in an RRSP or RESP grows tax-free, and it is not taxed until the student withdraws from the RESP or when the retiree receives payments from the RRSP.

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