RRSP Loan Gross-Up Calculator

What Is the RRSP Gross-Up Strategy?

The RRSP gross-up strategy is a Canadian tax planning technique where you borrow money to increase your RRSP contribution beyond what you could afford with cash alone. The key insight is that your tax refund from the larger contribution is used to repay the loan, effectively giving you a bigger RRSP for no additional out-of-pocket cost.

How the Math Works

The formula is straightforward:

• Gross-Up Amount = Cash Available / (1 - Marginal Tax Rate)
• At a 30% marginal rate: $10,000 / (1 - 0.30) = $14,286
• You borrow $4,286 and contribute the full $14,286 to your RRSP
• Your tax refund is $14,286 x 30% = $4,286 — exactly the loan amount
• The refund repays the loan (minus a small interest cost)

Why It Works Better at Higher Tax Brackets

The higher your marginal tax rate, the larger the multiplier. At 20%, you get a 1.25x gross-up. At 50%, you get a 2.0x gross-up — doubling your RRSP contribution. This is why the strategy is most powerful for high-income earners in the top combined federal-provincial brackets.

Risks and Considerations

• Loan interest: RRSP loan interest is NOT tax-deductible (unlike investment loans used for non-registered accounts). The interest cost slightly reduces the net benefit.
• Investment risk: The extra RRSP contribution could lose value if markets decline. You still owe the loan regardless of investment performance.
• Discipline required: You must use the tax refund to repay the loan. If you spend the refund, you end up with debt and no benefit.
• Short-term loan: RRSP loans are typically 12 months or less. Keep the term short to minimize interest costs.

When Does It Make Sense?

• You have unused RRSP contribution room
• You have stable employment income and can service the loan
• You are disciplined enough to direct the refund toward loan repayment
• You are in a higher marginal tax bracket (30%+ combined rate)
• You have years until retirement for the extra contribution to compound