The end of 2022 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!
In this article, we’ve covered four different major types of 2022 personal tax tips:
Investment Considerations
Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6000 for 2022. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $81,500 (including 2022).
Registered Retirement Savings Plan (RRSP)- Contribute to your RRSP or a spousal RRSP. Remember that you can deduct contributions made within the first sixty days of the following calendar year from your 2022 income. You also have the option of carrying forward deductions. Consider the best mix of investments for your RRSP: hold growth investments outside the plan (to benefit from lower tax rates on capital gains and eligible dividends), and hold interest-generating investments inside. We can help if you need advice on how to make the most of your RRSP.
Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.
Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.
Individuals
The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.
COVID-19 federal benefits – If you repay any COVID-19 benefit amounts before 2023, you can deduct from your income the repayment amount in the year in which the benefit amount was received instead of the year it was repaid. (You can also split the deduction between the two years.)
Income Timing – If your marginal personal tax rate is lower in 2023 than in 2022, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2023 than in 2022, accelerate.
Worked at home in 2022?-You may be able to deduct an income tax deduction for home office expenses. The Canada Revenue Agency (CRA) has extended the availability of the simplified method—claiming a flat rate of $2 per day working at home due to the COVID-19 pandemic—to 2022. Consider what’s more advantageous for you to claim: the simplified or traditional method.
Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage! Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.
Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
Families
Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.
Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.
Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.
Estate planning arrangements – Review your estate plan annually to ensure it reflects the current tax rules. Review your will to ensure that it will form a valid will. Consider strategies for minimizing probate fees.
Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
Retirees
Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices!
Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits! Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.
Old Age Security – If you’re 65 or older, ensure you’re enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you’re running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this.
Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.
Students
Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.
Canada training credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Need some additional guidance?
Reach out to us if you have any questions. We’re here to help.
Federal Budget 2023 Highlights
/in 2023, blog, Business Owners, dental benefits, Family, financial planning, Individuals /by Bryan WilsonOn March 28, 2023, the Federal Government released their 2032 budget. This article highlights the following financial measures:
New transfer options associated with Bill C-208 for intergenerational transfer.
New rules for employee ownership trusts.
Changes to how the Alternative Minimum Tax is calculated.
Improvements to Registered Education Savings Plans.
Expanding access to Registered Disability Savings Plans.
Grocery rebate.
Deduction for tradespeople tool expenses.
Automatic tax filing.
New Canadian Dental Care Plan.
Amendments To Bill C-208 Intergenerational Transfer Introduces Two New Transfer Options
Budget 2023 introduces two transfer options associated with the intergenerational transfer of a business:
An immediate intergenerational business transfer (three-year test) based on arm’s length sales terms.
A gradual intergenerational business transfer (five-to-ten-year test) based on estate freeze characteristics.
For the three-year test, the parent must transfer both legal and factual control of the business, including an immediate transfer of a majority of voting shares and the balance, within 36 months. The parent must also transfer a majority of the common growth shares within the same time frame. Additionally, the parent must transfer management of the business to their child within a reasonable time, with a 36-month safe harbour. The child or children must retain legal control for 36 months following the share transfer, and at least one child must remain actively involved in the business during this period.
For the gradual transfer option, the conditions are similar to the immediate transfer, but with a few differences. The parent must transfer legal control, including an immediate transfer of a majority of voting shares and the balance, within 36 months. They must also transfer a majority of the common growth shares and the balance of common growth shares within the same time frame. As well, within 10 years of the initial sale, parents must reduce the economic value of their debt and equity interests in the business to 50% of the value of their interest in a farm or fishing corporation at the initial sale time, or 30% of the value of their interest in a small business corporation at the initial sale time. The child or children must retain legal control for the greater of 60 months or until the business transfer is completed, and at least one child must remain actively involved in the business during this period.
The extended intergenerational transfer now applies to children, grandchildren, stepchildren, children-in-law, nieces and nephews and grandnieces and grandnephews.
The changes apply to transactions that occur on or after January 1, 2024. If the election is made, the capital gain reserve period is extended to ten years, and the limitation period for assessing a return is extended to three years for an immediate transfer and ten years for a gradual business transfer.
New Rules for Employee Ownership Trusts
The employees of a business can use an employee ownership trust (EOT) to purchase the business without having to pay the owner directly to acquire shares. Business owners can use an EOT as part of their succession planning.
Budget 2023 introduces new rules for using ownership trusts (EOTs) as follows:
Extending the five-year capital gains reserve to ten years for qualifying business transfers to an EOT.
A new exception to the current shareholder loan rule which extends the repayment period from one to fifteen years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer.
Exempts EOTs from the 21-year deemed disposition rule that applies to some trusts. This means that shares can be held indefinitely for the benefit of employees.
Clean Energy Credits
The upcoming Budget 2023 is set to introduce a series of measures aimed at encouraging the adoption of clean energy. These measures include several business tax incentives such as:
Clean Electricity Investment Tax Credit: This is a refundable tax credit of 15% for investments in equipment and activities for generating electricity and transmitting it between provinces. The credit will be available to new and refurbished projects starting from March 28, 2023, and will end in 2034.
Clean Technology Manufacturing Credit: This tax credit is worth 30% of the cost of investments in new machinery and equipment for processing or manufacturing clean technologies and critical minerals. It applies to property acquired and put into use after January 1, 2024. The credit will be phased out starting in 2032 and fully eliminated in 2034.
Clean Hydrogen Investment Tax Credit: It offers a refundable tax credit ranging from 15% to 40% of eligible project expenses that produce clean hydrogen, as well as a 15% tax credit for certain equipment.
Clean Technology Investment Tax Credit: This tax credit will be expanded to include geothermal systems that qualify for capital cost allowance under Classes 43.1 and 43.2. The phase-out will begin in 2034, and it will not be available after that date.
Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS): The budget broadens and adjusts specific criteria for the refundable Investment Tax Credit (ITC) for CCUS. Qualified equipment now includes dual-purpose machinery that generates heat and/or power or utilizes water for CCUS and an additional process, as long as it meets all other requirements for the credit. The expense of such equipment is eligible on a proportionate basis, based on the anticipated energy or material balance supporting the CCUS process during the project’s initial 20 years.
Reduced rates for zero-emission technology manufacturers: The reduced tax rates of 4.5% and 7.5% for zero-emission technology manufacturers will be extended for three years until 2034, with phase-out starting in 2032. The eligibility will expand to include the manufacturing of nuclear energy equipment and processing and recycling of nuclear fuels and heavy water for taxation years starting after 2023.
Lithium from brines: Allow producers of lithium from brines to issue flow-through shares and expand the Critical Mineral Exploration Tax Credit’s eligibility to include lithium from brines.
Changes To How Alternative Minimum Tax Is Calculated
Budget 2023 proposed several changes to calculating the Alternative Minimum Tax (AMT), including the following:
The capital gains inclusion rate will increase from 80 percent to 100 percent, while capital losses and allowable business investment losses will apply at a rate of 50 percent.
The inclusion rate for employee stock option benefits will be altered to 100 percent, and for capital gains resulting from the donation of publicly listed securities, it will be modified to 30 percent.
The 30 percent inclusion rate will also apply to employee stock option benefits if any deduction is available because underlying shares are also publicly listed securities that were donated.
Certain deductions and expenses will now be limited to 50 percent, and only 50 percent of non-refundable credits (excluding a special foreign tax credit) will be permitted to reduce the AMT.
The AMT tax rate will increase from 15 percent to 20.5 percent.
The AMT exemption will rise from the present allowable deduction of $40,000 for individuals to an amount indexed to the fourth tax bracket, expected to be $173,000 in 2024.
The AMT carryforward period will remain unaltered at seven years.
Improving Registered Education Savings Plans (RESPs)
Budget 2023 introduces the following changes to RESPs:
As of March 28, 2023, beneficiaries may withdraw Educational Assistance Payments (EAPs) up to $8,000 (from $5,000) for full-time programs and $4,000 (from $2,500) for part-time programs.
Individuals who withdrew EAPs before March 28, 2023, may be able to withdraw an additional EAP amount, subject to the new limits and the plan terms.
Divorced or separated parents can now open joint RESPs for one or more of their children.
Expanding Access to Registered Disability Savings Plans
Qualifying family members, such as a parent, a spouse, or a common-law partner, can open an RDSP and be the plan holder for an adult with mental disabilities whose ability to enter into an RDSP contract is in doubt and who does not have a legal representative.
Budget 2023 announces the government’s intention to extend the provision that allows this until December 31, 2026. To further increase access to RDSPs, the government also intends to expand the provision to include adult siblings of an RDSP beneficiary.
Grocery Rebate
The Budget 2023 will implement the Grocery Rebate, which will be a one-time payment managed through the Goods and Services Tax Credit (GSTC) system. The maximum amount that can be claimed under the Grocery Rebate is:
$153 for each adult
$81 for each child
$81 for a single supplement.
The implementation of the Grocery Rebate will be gradual and will follow the same income thresholds as the present GSTC regulations.
Deduction for Tradespeople’s Tool Expenses
Budget 2023 increases the employment deduction for tradespeople’s tools to $1,000 from $500. This is effective for 2023 and subsequent taxation years.
Automatic Tax Filing
The Canada Revenue Agency (CRA) will pilot a new automatic filing service for Canadians who currently do not file their taxes to help them receive certain benefits to which they are entitled.
The CRA also plans to expand taxpayer eligibility for the File My Return service, which allows taxpayers to file their tax returns by telephone.
Canadian Dental Care Plan
In Budget 2023, the federal government is investing in dental care for Canadians with the new Canadian Dental Care Plan. The plan will provide dental coverage for uninsured Canadians with annual family incomes of less than $90,000, with no co-pays for those under $70,000.
The budget allows the CRA to share taxpayer information for the Canadian Dental Care Plan with an official of Employment and Social Development Canada or Health Canada solely to administer or enforce the plan.
Wondering How This May Impact You?
If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!
Ontario 2023 Budget Highlights
/in blog, Business Owners, Individuals, Ontario Only, Tax /by Bryan WilsonOntario 2023 Budget Highlights
On March 23, 2023, Ontario’s Minister of Finance delivered the province’s 2023 budget. Here are some of the highlights.
No Changes To Corporate or Personal Tax Rates
Budget 2023 did not change Ontario’s corporate or personal tax rates.
Corporate Tax Credits
Budget 2023 introduces a 10% refundable Manufacturing Investment Tax Credit for Canadian-controlled private corporations (CCPCs). This tax credit applies to qualifying capital investments related to manufacturing or processing, with the goal of helping Ontario manufacturers lower their costs and become more competitive.
The budget confirms extending eligibility for Ontario’s film and television tax credits to productions distributed exclusively online.
Budget 2023 also confirms that the province will align with the federal government’s increase in the upper limit for the small-business deduction phase-out range from $15 million to $50 million. This change will take effect for taxation years beginning on or after April 7, 2022.
Consequently, the small-business deduction will only be reduced to zero once a Canadian-controlled private corporation (CCPC) and its affiliated companies have a combined taxable capital of $50 million or more.
Indirect Tax Changes
As of July 1, 2023, a single 12% tax will be applied to wine and wine coolers sold in off‐site winery retail stores. This includes wine boutiques. This tax will replace the four separate tax rates currently applied and is expected to result in an overall tax reduction of about $4 million per year.
Increasing Healthcare Options
Budget 2023 commits $200 million to help the healthcare workforce grow, including training more nurses and helping foreign-trained nurses and doctors attain accreditation in Ontario. In addition, $569 million will be spent to expand home care options.
To help address backlogs, an additional $72 million has been committed to providing OHIP-covered surgeries at community surgical and diagnostic centres.
Over three years, $425 million has been committed to mental health services.
Supporting Communities
The Guaranteed Annual Income System, designed to assist low-income seniors, is set to expand. With an increase in the private income threshold, approximately 100,000 more seniors will be eligible to benefit from the program starting July 2024. The Ontario 2023 budget includes plans to adjust the benefit annually to keep pace with inflation.
Budget 2023 contains $22 billion to build more schools and childcare spaces.
Supporting The Economy And Infrastructure
Ontario is investing an additional $3 million this year to help junior mining companies finance mineral exploration and development.
Budget 2023 commits $224 million to build and upgrade training centres in Ontario and $75 million to the Skills Development Fund over the next three years. The Skills Development Fund aims to help employers address challenges related to hiring, training or retaining workers.
Budget 2023 also includes funding to help ensure Ontario has the infrastructure it needs:
$27.9 billion will be spent to support highway expansion and rehabilitation project planning and construction.
Over the next ten years, $70.5 billion will be spent on transit, strongly emphasizing supporting GO transit and expanding the Toronto subway system.
We can help!
Wondering how the budget will impact you? Reach out to us – we’re here to answer any questions!
Permanent versus Term Life Insurance – What are the Differences?
/in blog, life insurance /by Bryan WilsonPermanent versus Term Life Insurance – What are the Differences?
You know you need life insurance – but you’re not sure which kind is best for you. We can help you with that decision.
There are two main kinds of life insurance:
Permanent, which lasts for your entire life.
Term, which is only good for a set amount of time.
No matter which type of life insurance you buy – permanent or term – you can rest easy knowing you’ve provided financial protection for your family.
Permanent life insurance
Permanent life insurance is good for your entire life unless you choose to cancel it. It’s an excellent choice to give you peace of mind that you’ll always be covered, even if you develop major health issues later in life.
There are also benefits to having permanent life insurance beyond guaranteed lifelong coverage:
You can use the policy to build up a cash value – making it a good choice for low-risk investing.
You may be able to use your permanent life insurance policy as collateral for a loan, making it a good choice for business owners.
The main drawback to permanent life insurance policies is that the premiums are often more expensive than term life insurance premiums. If, however, you’re thinking long-term and can afford the premiums, permanent life insurance is a great way to ensure you’re always protected and can have some guaranteed money for your estate.
Term life insurance
Term life insurance is either valid for a set amount of time (such as five or ten years) or until you reach a set age – for example, 60. You should generally be able to renew your life insurance at the end of each term, but your premiums may go up.
Term life insurance premiums are cheaper than permanent life insurance premiums – at least, you are younger and healthier (as the risk of you dying is lower). Your premiums will increase as you age or develop health issues.
You can’t use term life insurance as collateral for a loan or use the policy to build up a cash value. There are lots of benefits to term life insurance, though – it’s a good choice for you if you want low premiums, easy-to-understand insurance, and only need it for a set amount of time – such as while you have a mortgage or young children.
We can help you decide between permanent and term life insurance
If you’re not sure what kind of life insurance is best for you, we can help. We’re happy to talk to you to get more information about your insurance needs. We can then discuss what each type of insurance will cost you and which type of insurance we feel is best for you.
Give us a call today!
TFSA versus RRSP – What you need to know to make the most of them in 2023
/in 2023, blog, RRSP, Tax Free Savings Account /by Bryan WilsonWhen looking to save money in a tax-efficient manner, Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) can offer significant tax benefits. To assist you in understanding the distinctions, we will compare the following:
The differences in deposits between TFSAs and RRSPs
The differences in withdrawals between TFSAs and RRSPs
TFSA versus RRSP – Difference in deposits
When comparing deposit differences between TFSAs and RRSPs, there are several key considerations:
The amount of contribution room available
The ability to carry forward unused contributions
The tax deductibility of contributions
The tax treatment of growth in the account
How much contribution room do I have?
If you have never contributed to a TFSA, you can contribute up to $88,000 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
Year
TFSA dollar limit
2023
$6,500
2022
$6,000
2021
$6,000
2020
$6,000
2019
$6,000
2018
$5,500
2017
$5,500
2016
$5,500
2015
$10,000
2014
$5,500
2013
$5,500
2012
$5,000
2011
$5,000
2010
$5,000
2009
$5,000
Regarding RRSPs, the limit for tax deductions is 18% of your pre-tax income from the previous year, with a maximum limit of $30,780. To illustrate, if your pre-tax income in 2022 was $60,000, your deduction limit for 2023 would be $10,800 (18% x $60,000). If your pre-tax income was $200,000, the maximum limit of $30,780 would apply.
How much contribution room can I carry forward?
Suppose you opt not to contribute to your TFSA each year or do not contribute the maximum amount. In that case, you can carry forward your unused contribution room indefinitely, provided you are a Canadian resident, over 18 years of age, and have a valid social insurance number. If you make a withdrawal, the amount withdrawn will be added to your annual contribution room for the next calendar year.
In contrast, for an RRSP, you can carry forward your unused contribution room until age 71. Once you reach 71, you are required to convert your RRSP into an RRIF. Withdrawals from an RRSP do not create additional contribution room.
The tax deductibility of contributions
Your TFSA contributions are not tax-deductible and are made with after-tax dollars.
Your RRSP contributions are tax-deductible and made with pre-tax dollars.
Tax Treatment of Growth
It is essential to contribute to both RRSP and TFSA because of the different tax treatment of the growth within them.
A TFSA is ideal for short-term goals, such as saving for a down payment on a house or a vacation, as its growth is entirely tax-free. When withdrawing from your TFSA, you will not have to pay any income tax on the amount withdrawn. On the other hand, the growth within an RRSP is tax-deferred. This means you will not pay taxes on your RRSP gains until age 71, at which point you convert the RRSP into an RRIF and start withdrawing money.
RRSPs are more suitable for long-term goals such as retirement because, in retirement, you will have a lower income and be in a lower tax bracket, resulting in less tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are several areas to focus on when comparing differences in withdrawal:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.
For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st, 2023.
Tax Treatment of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! Therefore, they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits, including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you withdraw from your TFSA, the amount you withdrew will be added on top of your annual contribution room for the following calendar year. If you withdraw from your RRSP, you do not open any additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.
2023 Financial Calendar
/in 2023, blog, financial planning, Retirement, RRSP, Tax Free Savings Account /by Bryan WilsonWelcome to our 2023 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.
If you need help with your taxes, tax packages will be available starting February 2023. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.
2022 Year End Tax Tips and Strategies for Business Owners
/in 2022, 2022 Only, blog, Business Owners, financial planning, Tax /by Bryan WilsonNow that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.
Salary/Dividend Mix
As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.
When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.
The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.
In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:
Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.
Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.
Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.
Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.
No matter what strategy you take to distribute money from your business, keep in mind the following:
Your marginal tax rate as the owner-manager.
The corporation’s tax rate.
Health and payroll taxes
How much RRSP contribution room do you have?
What you’ll have to pay in CPP contributions.
Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).
Compensation
Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.
These are the main things to consider when determining how you want to handle compensation:
Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.
Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?
Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?
Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.
Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.
Passive Investments
One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12 to 21 percent, depending on the province or territory.
With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.
The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.
These are some of the ways you can make sure you preserve your access to the SBD:
Defer the sale of portfolio investments as necessary.
Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold are taxable, but investment income earned on bonds is fully taxable.
Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.
Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.
Depreciable Assets
Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).
Here’s how to make the most of tax planning with depreciable assets:
Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.
Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.
Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2022 taxation year.
Qualified Small Business Corporation (QSBC) Share Status
Ensure your corporate shares are eligible to get you the $913,630 (for 2022) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.
Suppose you sell QSBC shares scheduled to close in late December 2022 to January 2023. In that case, you may want to consider deferring the sale to access a higher LCGE of $971,190 for 2023 and therefore defer the tax payable on any gain arising from the sale.
Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.
Donations
Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.
For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:
Donate Securities
Give a direct cash gift to a registered charity
Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.
Set up a private foundation to solely represent your interests.
We can help walk you through the tax implications of these types of charitable donations.
Get year-end tax planning help from someone you can trust!
We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.
2022 Personal Year-End Tax Tips
/in 2022 Only, blog, Individuals /by Bryan WilsonThe end of 2022 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!
In this article, we’ve covered four different major types of 2022 personal tax tips:
Investment Considerations
Individuals
Families
Retirees
Students
Investment Considerations
Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6000 for 2022. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $81,500 (including 2022).
Registered Retirement Savings Plan (RRSP)- Contribute to your RRSP or a spousal RRSP. Remember that you can deduct contributions made within the first sixty days of the following calendar year from your 2022 income. You also have the option of carrying forward deductions. Consider the best mix of investments for your RRSP: hold growth investments outside the plan (to benefit from lower tax rates on capital gains and eligible dividends), and hold interest-generating investments inside. We can help if you need advice on how to make the most of your RRSP.
Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.
Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.
Individuals
The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.
COVID-19 federal benefits – If you repay any COVID-19 benefit amounts before 2023, you can deduct from your income the repayment amount in the year in which the benefit amount was received instead of the year it was repaid. (You can also split the deduction between the two years.)
Income Timing – If your marginal personal tax rate is lower in 2023 than in 2022, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2023 than in 2022, accelerate.
Worked at home in 2022?-You may be able to deduct an income tax deduction for home office expenses. The Canada Revenue Agency (CRA) has extended the availability of the simplified method—claiming a flat rate of $2 per day working at home due to the COVID-19 pandemic—to 2022. Consider what’s more advantageous for you to claim: the simplified or traditional method.
Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage! Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.
Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.
Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.
Families
Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.
Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.
Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.
Estate planning arrangements – Review your estate plan annually to ensure it reflects the current tax rules. Review your will to ensure that it will form a valid will. Consider strategies for minimizing probate fees.
Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.
Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.
Retirees
Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices!
Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits! Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.
Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.
Old Age Security – If you’re 65 or older, ensure you’re enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you’re running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this.
Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.
Students
Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.
Canada training credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Need some additional guidance?
Reach out to us if you have any questions. We’re here to help.
Insurance Planning for Incorporated Professionals
/in blog, Buy Sell, critical illness insurance, disability insurance, Group Benefits, health benefits, incorporated professionals, Insurance, life insurance, travel insurance /by Bryan WilsonFor incorporated professionals, making sure your practice is financially protected can be overwhelming. Incorporated professionals face a unique set of challenges when it comes to managing risk. Insurance can play an important role when it comes to reducing the financial impact on your practice in the case of uncontrollable events such as disability, or critical illness. This infographic and article address the importance of corporate insurance.
The 4 areas of insurance a incorporated professional should take care of are:
Health
Disability
Critical Illness
Life
Health: We are fortunate in Canada, where the healthcare system pays for basic healthcare services for Canadian citizens and permanent residents. However, not everything healthcare related is covered, in reality, 30% of our health costs* are paid for out of pocket or through private insurance such as prescription medication, dental, prescription glasses, physiotherapy, etc.
For incorporated professionals, offering employee health benefits make smart business sense because health benefits can form part of a compensation package and can help retain key employees and attract new talent.
For incorporated professionals that are looking to provide alternative health plans in a cost effective manner, you may want to consider a health spending account.
Disability: Most people spend money on protecting their home and car, but many overlook protecting their greatest asset: their ability to earn income. Unfortunately one in three people on average will be disabled for 90 days or more at least once before the age of 65.
Consider the financial impact this would have on your practice if you or a key employee were to suffer from an injury or illness. Disability insurance can provide a monthly income to help keep your practice running.
Business overhead expense insurance can provide monthly reimbursement of expenses during total disability such as rent for commercial space, utilities, employee salaries and benefits, equipment leasing costs, accounting fees, insurance premiums for property and liability, etc.
Key person disability insurance can be used to provide monthly funds for you or key employee while they’re disabled and protect the business from lost revenue while your business finds and trains an appropriate replacement.
Critical Illness: For a lot of us, the idea of experiencing a critical illness such as a heart attack, stroke or cancer can seem unlikely, but almost 3 in 4 (73%) working Canadians know someone who experience a serious illness. Sadly, this can have serious consequences on you, your family and business, with Critical Illness insurance, it provides a lump sum payment so you can focus on your recovery.
Key person critical illness insurance can be used to provide funds to the practice so it can supplement income during time away, cover debt repayment, salary for key employees or fixed overhead expenses.
Buy sell critical illness insurance can provide you with a lump sum payment if your business partner or shareholder were to suffer from a critical illness. These funds can be used to purchase the shares of the partner, fund a buy sell agreement and reassure creditors and suppliers.
Life: For an incorporated professional, not only do your employees depend on you for financial support but your loved ones do too. Life insurance is important because it can protect your practice and also be another form of investment for excess funds.
Key person life insurance can be used to provide a lump sum payment to the practice on death of the insured so it can keep the business going until you an appropriate replacement is found. It can also be used to retain loyal employees by supplying a retirement fund inside the insurance policy.
Loan coverage life insurance can help cover off any outstanding business loans and debts.
Reduce taxes & diversify your portfolio, often life insurance is viewed only as protection, however with permanent life insurance, there is an option to deposit excess funds not needed for operations to provide for tax-free growth (within government limits) to diversify your portfolio and reduce taxes on passive investments.
Talk to us to make sure you and your practice are protected.
Essential tips and tricks for paying less tax and keeping more of your retirement income
/in blog, Retirement /by Bryan WilsonEssential tips and tricks for paying less tax and keeping more of your retirement income
Most of your retirement income sources are taxable; Canadian Pension Plan (CPP), your personal pension plan (if you have one) and income from your RRIFs. However, if you’ve set up a TFSA in addition to your RRSPs, then you’re in luck – money you take out of your TFSA isn’t taxable!
We have some tips on combining savvy withdrawal strategies with retirement-related tax deductions to keep more of your retirement income.
Make a Plan
Determine all the different sources of retirement income you’ll have – don’t forget about things like annuities, GICs or income from a rental property if you have one. Once you have a complete list, a professional financial advisor can give you tips on when it’s best to start collecting pension income as well as how much to withdraw from your taxable investments. A strong plan can help reduce the amount of tax you have to pay and extend the life of your retirement income!
Split your pension income
If you have reached the age of 65 and have a pension, you can split up to 50% of the pension income with your spouse. Splitting your pension with a lower-income spouse can add up to savings, as this will cut down on the amount of taxes you’ll have to pay overall.
While rewarding, the process to split your pension income can be complicated, so it’s best to get professional advice before starting this process.
Buy an annuity
Annuities are a financial product that will provide you with a guaranteed regular income – a good choice if you are worried about your retirement savings running out.
These are the most common types of annuities:
Life annuities provide you with a guaranteed lifetime income, with the option for the annuity to be paid to a beneficiary after you die.
Term-certain annuities provide guaranteed income payments for a fixed period. A beneficiary or your estate will receive regular payments if you die before the term ends.
Variable annuities will provide you with both a fixed income and a variable income. The variable income will be based on the return of the annuity provider on the performance of the investments your annuity provider invests your money in.
All types of annuities will spread out the income from your retirement savings to lessen the tax you pay each year.
Take advantage of tax breaks
Now that you’re retired, there are retirement-related tax breaks you need to know about. Here are some of the tax breaks or credits you may be eligible for:
The age amount
The home accessibility tax credit
The medical expense tax credit
The disability tax credit
The pension income tax credit
We can help!
We can put together a plan that helps you keep more of your retirement income – call us today!
The Five Steps to Investment Planning
/in blog, financial planning, Investment /by Bryan WilsonThe Five Steps to Investment Planning
For a long time, there were limited options for most investors. But now, there are hundreds of investments for investors to choose. However, this amount of choice can be overwhelming. Fortunately, an investment advisor can help you figure out what the right investment choices are for you.
Meeting your investment advisor
When you first meet with your investment advisor, they will tell you about their obligations and responsibilities. They should:
Give you general information about your various investment choices (e.g. stocks, bonds, mutual funds)
Tell you how they are compensated for their services
Ask if you have any questions about specific investment vehicles (such as RRSPs or TFSAs)
Determining your goals and expectations
The next step is to for your investment advisor to fill out a “Know Your Client” type of worksheet. The information on this worksheet will help your investment advisor determine the most suitable investment options for you. You’ll need to provide information on your:
Income
Net worth
Investment knowledge
Risk tolerance
Time horizon (how long you want to invest for)
How frequently do you want to invest
Developing your investment plan
Once they have all the information they need, your investment advisor will suggest the investments they think are appropriate for you.
Implementing the plan
Once you approve your investment advisor’s suggestions, you will fill in all the appropriate paperwork to set things in motion. After that, you must provide a way to fund your investments. Your investment advisor can then make any initial purchases and set up any ongoing fund purchases or transfers from other investments.
Monitoring the plan
Your investment advisor should contact you at least once a year to make sure your plan is still suitable for you and discuss any changes you want to make to it. If you have any major life events, such as getting married or changing jobs, you should contact your investment advisor to see if you should revisit your plan.
The sooner you start your investment planning, the sooner you can reach your investment goals! So contact us today!