¡Hola!

“I need some financial/tax advice,” says Derek. The email came from Holbox, an exotic Caribbean/Mexican island about eighty clicks north of Cancun. It’s a long haul from Calgary.

“I hit a homer at work last year and I have just received a generous bonus as a result of that,” he says. “I have both my TFSA and RRSP accounts maxed out but my wife has room on both.”

But all is not perfect.

“My wife’s annual salary is way less than mine and she’s getting laid off at the end of this month so her annual income for 2026 could potentially be the lowest in years, depending on how hard it is to find a new job, and with Calgary having a bit of a bust right now, likely that it will take a while.

We also have two little kids (4 and 6 years old), I have a RESP for both but haven’t contributed yet as I don’t quite understand how these work. Other than our mortgage, we have no other debt. luckily we locked in a 1.8% fixed rate 4 years ago, so still reaping the benefits of that for another year.

Given our context, if I was to make contributions to my wife’s RRSP, TFSA or kids’ RESPs, is there one that is more advantageous for our household? is there something I’m not considering? Like a new bimmer?”

You get a bonus and start drooling over a BMW? Put your Big Boy pants back on, Derek. You have a family, a house, debt and a future to finance. Let the fancy Germans take care of themselves.

There are a lots of options to consider. For example, if you’d made a fat RRSP contribution into a spousal account you’d reap the same personal tax break as putting it into your own plan, but with a twist. After three years the money becomes her property and can be removed at her lower tax rate (or maybe no tax, if she’s still at home). Meanwhile she still retains her own unused RRSP room, which can be utilized later when she leaves you and returns to work, for having bought that Z4 M40i roadster.

Of course, you could also pledge fidelity and make a spousal loan. This is an effective way to split income in a family, and save on taxes by making the lower-income person a significant investor.

To do so, give her a pile of money documented as a demand loan. She must pay you interest each year, but the prescribed CRA rate is a lowly 3%. Plus she gets to deduct that interest from her taxable income because it’s a legitimate investment loan. You’re obligated to pay tax on the interest, but it’s a paltry amount – and it’s coming from her. She takes the funds and invests them, hopefully in some equity-based ETFs, and none of the gains are attributed to you.

By the way, you can just gift her all the money required to fill up her TFSA. None of that, nor any of the investment returns, will be attributable to you. As for her unused RRSP room, save it. If this turns out to be a low-income year, maybe becoming a no-income one in 2027, the tax deduction can be far more useful later when employment cash flow resumes.

And no RESP money yet for the squirmers? Fix that. Free money is available from the feds just for doing the right thing – taking care of your kids. Dump in $2,500 for each of them and collect a matching $1,000 government grant for doing so. That’s the easiest 20% you’ll ever make. Then invest the contributions in 100% equity-based ETFs (there is a long time horizon, so no immediate need for balance), and commit to making an equal contribution yearly, until the limit ($50,000 per kid) is reached.

Now, the mortgage.

Rest assured you won’t be renewing at 1.8% next year. At this moment it appears the rate will sit well north of 4%. Maybe more, depending on the clumsy Iran war, the brewing energy debacle and the likely resurgence of inflation and interest rates – maybe even stagflation.

Have you budgeted for that? Did you consider dumping your bonus against the home loan principal to blunt the impact of a doubling in the rate? If your spouse is still out of work next year, will this cause financial distress in the household? Do you have a plan? If not, why not?

Lastly, Holbox. Seriously? Hotels there run about $300 US a night, plus you need to fly from Cowtown to Cancun, then take a ferry or flight to get offshore. Drinks with little umbrellas are fifteen bucks. So given the reality of dropping to a single-income family with three dependents and a serious mortgage renewal looming, is this the best use of that windfall bonus money? Dunno. Maybe it is. But doubt it. And maybe it’s none of our business.

But you asked.

About the picture: As his toll for sending us a question, Derek submits this photo of pooches in his vacation hood. “Those two cachorros in the picture are Chewbacca and Chapo,” he says, “guard dogs at a convenience store in Holbox.”

To be in touch ro send a picture of your beast, email to ‘garth@garth.ca