What is a Tax Deferred?

Tax-deferred refers to a strategy where income, interest, or gains are not taxed in the year they are earned or accrued, but rather taxed at a later time.

How Does Tax Deferral Work?

Instead of paying taxes on income immediately, tax-deferred accounts or investments let your money grow without annual tax deductions, meaning:
✔️ Compounding works harder for you—your returns generate more returns
✔️ You control when you pay taxes—often at a lower rate in retirement
✔️ More cash flow today—freeing up money for investments or expenses

Common Tax-Deferred Accounts in Canada

1️⃣ Registered Retirement Savings Plan (RRSP): Contributions reduce taxable income, and growth is tax-deferred until withdrawal.
2️⃣ Individual Pension Plans (IPPs): A great strategy for incorporated business owners looking for larger tax-deferred retirement savings.
3️⃣ Permanent Life Insurance (Participating or Universal Life): Can accumulate cash value on a tax-deferred basis.

Who Benefits from Tax Deferral?

✅ High earners—who can lower taxable income today
✅ Business owners & incorporated professionals—who want flexible retirement planning
✅ Anyone planning for retirement—to smooth out taxable income over time

The Key to Using Tax Deferral Wisely

Tax deferral is not tax avoidance—it’s about paying taxes at the right time. The goal is to withdraw when your marginal tax rate is lower, making strategic withdrawals essential.

Pro Tip: Don’t just defer blindly—plan for when and how you’ll withdraw to minimize lifetime taxes.