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Q. My spouse earns $430,000 per year and has maxed out his Registered Retirement Savings Plan (RRSP) contributions and therefore is not eligible for further tax deductions. He has continued to contribute to the Employer Stock Purchase Plan (ESPP) which his employer matches. I earn $34,000 a year working part-time. I have accumulated an unused RRSP contribution amount of $45,000 from past years.

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On the home front, we have four children and some childcare expenses and medical expenses, as well as university tuition costs. What are our best options for lowering the giant tax owing that I fear we face this year? Could I buy RRSPs and receive a refund that might slightly offset our tax bill? Should we just pay the tax? Or is there something else we should be doing? —Thanks, Anna Maria

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FP Answers: Contributing to an RRSP will give you a tax deduction that can lower your taxable income and will usually result in tax savings. However, it may not always be the best idea in the long run, Anna Maria. RRSPs are most effective if you contribute in higher income years and withdraw in lower income years.

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Given your income of $34,000, the tax savings would be minimal at around 20 per cent in most provinces. You also have childcare expenses you can deduct as the lower income spouse. The tax savings at the highest marginal tax bracket in some provinces are 50 per cent or more. Future withdrawals from your RRSP may end up getting taxed at much higher rates. If your spouse has a large RRSP that is maxed out every year, he can split future Registered Retirement Income Fund (RRIF) withdrawals with you once he is 65 years old, and your tax rate could be much higher in retirement.

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Tax refunds can provide short-term cash flow, but timing when you deduct RRSP contributions is important. If you anticipate a future capital gain that will push up your income, an RRSP contribution may be more beneficial in a future year.

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Beyond RRSPs, you should max out your Tax-Free Savings Accounts (TFSAs) annually. If you haven’t contributed to these accounts in the past you may have as much as $204,000 in contribution room between you and your spouse.

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You should contribute to a Registered Education Savings Plan (RESP) to get the Canadian Education Savings Grant, which provides $500 in government grants for each $2,500 contributed per child. The funds also grow tax deferred, and withdrawals are taxable to the student.

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If your TFSA and RESP accounts are maximized, you could consider debt repayment if you have debt. This may not save you tax, but it will save you interest expenses.

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Your spouse cannot give you money to invest to avoid paying tax at their higher tax rate. There is a concept called attribution that prevents this. If your spouse gives you money to invest in a taxable account, the resulting income and capital gains get taxed back to you. That is, unless the money is loaned at the Canada Revenue Agency (CRA) prescribed rate, which is currently three per cent.