The end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
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You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
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You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
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You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
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A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward 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.
If you have 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.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
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If you are between the ages of 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021.
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You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
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Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
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Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
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Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have 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.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses 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. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant 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.
Retirees
Are you 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.
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.
Do you not currently have any pension income? Then, 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.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are 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 are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.
Don’t lose all your hard-earned money to taxes
/in blog, Tax /by Bryan WilsonDon’t lose all your hard-earned money to taxes
Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:
Make the most of the lifetime capital gains exemption
Decrease your end-of-life tax bill
Look into Immediate Financing Arrangements
Lifetime capital gains exemption
The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.
End-of-life tax bill
As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.
Consider an Immediate Financing Arrangement
An Immediate Financing Arrangement (IFA) lets your business:
Get a life insurance premium on behalf of a shareholder
Create a tax deduction
Transfer assets tax-free from the business to a shareholder’s estate
Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.
The Takeaway
While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.
Financial Planning For Self-Employed Contractors
/in blog, Business Owners /by Bryan WilsonFinancial Planning for Self-Employed Contractors
Being a self-employed contractor can bring you a large cash flow and the satisfaction of being your own boss – but it can also make financial planning more complicated than being an employee.
When creating a financial plan, Self-employed contractors need to keep the following in mind:
The best way to ensure you’ve got a solid financial plan is to work with a good team who has your best interests in mind. No matter what aspect of financial planning you are interested in – from tax planning to succession planning – we can help you get started. So call us or contact us online today to get started!
Five Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
/in blog, Business Owners, corporate, Tax /by Bryan WilsonFive Ways To Withdraw Money From Your Business In A Tax-Efficient Manner
You have worked long and hard to build up your business, and now you are ready to withdraw money from your business’ bank account. But you don’t want to get hit with a huge tax bill. So here are 5 ways to withdraw money from your business in a tax-efficient manner.
1) Pay Yourself And Your Family Members
You can pay yourself a salary from your business and pay any family members who work in your business. However, the salary you pay family members must not be excessive – it must be in line with what they would receive for doing the same work elsewhere.
You and your family members will be taxed at the regular personal marginal tax rates on your salaries. However, your corporation can make a deduction based on salaries paid when determining taxable income.
2) Pay Out Taxable Dividends
You can use dividends to distribute money from your corporation to both yourself and family members if everyone holds shares in your corporation. However, when distributing dividends to a shareholder, it is critical to consider both the tax on split income (TOSI) rules and the corporate attribution rules before any distribution is made.
TOSI rules – Under the current income tax rules, the TOSI applies the highest marginal tax rate (currently 33%) to “split income” of an individual under the age of 18. In general, an individual’s split income includes certain taxable dividends, taxable capital gains and income from partnerships or trusts. – Canada.ca
Corporate attribution rules – Corporate attribution rules may result in additional tax if a transfer or loan to a corporation is made to shift income to another family member. This can result in additional tax for the individual making the transfer or loan.
3) Pay Out Capital Dividends
Another way to pay out dividends is via your corporation’s capital dividend account (CDA). Money in your corporation’s CDA can be dispersed to Canadian resident shareholders as a tax-free dividend, but be sure you are clear on what can legally be allowed in your CDA before you do this.
4) Adjust Your Salary And Dividend Mix
Keeping the right mix when paying yourself a salary and paying yourself via dividends is essential. You need to consider various factors – such as your cash flow needs, earned income for RRSP contributions, and any impact on taxes and other regulatory requirements – paying out salaries and dividends can have.
5) Repay Any Outstanding Shareholder Loans
If you loaned money to your company in the form of a shareholder loan, now may be the time to have your company repay that loan. Any money you receive to settle your shareholder loan will be paid to you as a tax-free distribution.
The Takeaway
Regardless of why you need to take cash out of your business, it is crucial to plan how to withdraw the money so you can do it in the most tax-efficient manner possible. Unfortunately, there is no one-size-fits-all solution for this, which is why talking to a professional advisor is so important.
We can help design a tax-optimized compensation strategy for you. Contact us to set up a meeting today!
2022 Ontario Budget Highlights
/in 2022, blog /by Bryan WilsonOn April 29, 2022, Ontario’s Minister of Finance delivered the province’s 2022 budget, based on five different pillars.
No Changes To Corporate or Personal Tax Rates
Budget 2022 did not introduce changes to Ontario’s corporate or personal tax rates.
Rebuilding The Economy
Budget 2022 wants to help rebuild the economy as follows:
Almost $1 billion is committed to critical legacy infrastructure, such as all-seasons roads.
Creating good manufacturing jobs. In the past 18 months, 12 billion dollars have been invested in supporting new electric vehicle production and battery manufacturing.
Enable Ontario employers to realize an estimated $8.9 billion in cost savings by cutting taxes and lowering electricity costs.
Better Jobs and Bigger Paycheques
Another focus is on more significant paycheques and better job opportunities. To support this:
The general minimum wage will rise to $15.50 per hour starting October 1, 2022.
$1 billion will be committed annually to employment and training programs for learning new skills or upgrading existing ones.
Over three years, $114.4 million has been committed to the Skilled Trades Strategy, including expanding in-class training.
Ontario is expanding college degree granting. Colleges can start offering new degree programs in various sectors, including the automotive industry and health care.
Building Highways and Key Infrastructure
Budget 2022 commits to:
Investing $158.8 billion in crucial infrastructure over ten years, with $20 billion spent in 2022–23.
$25.1 billion being spent over ten years to support major highways such as the Bradford Bypass, Highway 413, Highway 401 and Highway 7.
$61.6 billion over ten years to support public transit. This includes expanding GO train services to London and Bowmanville and expanding passenger rail service to Northern Ontario.
Keeping Costs Down
Another focus of Budget 2022 is to help people save money:
Tolls will be removed on Highways 412 and 418.
Starting July 1, the gas tax will be cut by 5.7 cents per litre for six months.
License plate renewal fees will be eliminated and refunded, leading to a $120/year savings in Southern Ontario and $60/year savings in Northern Ontario.
$300 in additional tax relief will be available on average for 1.1 million lower-income workers via the proposed Low-income Individuals and Families Tax Credit enhancement.
Supporting the creation of all types of housing.
Working towards an average of $10-a-day child care by September 2025.
Investing in Health Care
Budget 2022 also understands the importance of continuing to invest in health care. Money is committed as follows:
Over $40 billion for hospitals and other health infrastructure over ten years.
$764 million over two years to provide nurses with a retention incentive of up to $5,000.
$42.5 million over two years to expand medical education and training.
$1 billion for in-home care over three years.
We can help!
Wondering how tax changes in this year’s budget may impact personal finances or business affairs? Reach out to us – we’re here to answer any questions you may have!
2021 Income Tax Year Tips
/in blog, Tax /by Bryan WilsonTax Tips You Need To Know Before Filing Your 2021 Taxes
This year’s tax deadline is April 30, 2022. We’ve got a list of tips to help you save on your taxes!
Claiming home office expenses
You can claim up to $500 under the “flat rate” method if you worked at home due to COVID-19. To claim more, you must use the detailed method to claim home office expenses.
Employer-provided benefits
If your employer reimburses you for certain costs (such as commuting costs, parking, and home office equipment) due to COVID-19, the CRA will generally not consider this a taxable benefit.
Repaying Covid-19 support payments
If you repaid COVID-19 benefits, you can deduct the amount on your tax return either for the year you received the benefit or the year you repaid it, or you can split the deduction between both years.
Climate Action incentive can no longer be claimed
As of 2021, this amount can’t be claimed as a refundable credit; instead, you’ll receive quarterly payments via the benefits system.
Disability tax credit (DTC)
If you or a family member are DTC claimants, then you should review the updated criteria for the tax credit in regards to mental functions, life-sustaining therapy and calculating therapy time.
Eligible educator school supply tax credit
This tax credit has been increased to 25 percent for eligible supplies (such as books and games) to a maximum of $1,000.
Tax deduction on interest payments
You can claim a tax deduction for the interest you’ve paid on any money you’ve borrowed to invest. However, you can only do this if you use the money to earn investment income (for example, a rental property).
The digital subscriptions tax credit
You can claim up to $500 as a tax credit if you have a digital subscription to a qualifying Canadian news outlet.
Self-employed? Be sure to set aside enough for personal income tax!
If you’re self-employed, be sure you put aside enough money (we recommend 25% of your income) to pay your tax bill when the time comes. You’re taxed only on your net income (total income minus expenses).
You need to plan ahead for tax changes if you want to retire abroad
Planning to retire abroad? If so, you need to be aware of the tax implications and plan accordingly. If you sell your house and move, you may be considered a “non-resident” and be subject to capital gains taxes on non-registered investments (even if you have not sold them) or have your pension subjected to a withholding tax.
You can stop making CPP contributions if you’re over 65 but plan to keep working
If you’re 65 and already collecting Canada Pension Plan (CPP) benefits but also still working, you may be able to stop making CPP contributions. To do so, you need to fill in the form CPT30.
Need help?
Not sure if you qualify for a credit or deduction? Give us a call – we’re here to save you money on your taxes!
Estate Planning for Business Owners
/in blog, Business Owners, Estate Planning, Family, life insurance /by Bryan WilsonEstate Planning for Business Owners
What happens when the children grow up and they are no longer dependent on their parents? What happens to your other “baby”- the business? Estate planning for business owners deals with the personal and business assets. Business succession planning is different because it deals with your business assets only and can also take place while you’re alive. You need to have an estate plan regardless if you have a succession plan or not. Estate planning for business owners is typically more complicated because the estate plan needs to deal with:
Complex business and personal relationships
Bigger and more intricate estates
Tax issues
Business Succession
When putting an estate plan for a business owner together, one of the most difficult conversations is around fair or equal distribution of assets. What if one of the children are working in the business how do you treat them? Before you begin putting a plan in place, we always encourage open conversation and a family meeting between the parents and children to provide context behind decisions and therefore it minimizes the surprises and provides an opportunity for children to express their concerns.
We’ve put together an infographic checklist that can help you get started on this. We know this can be a difficult conversation so we’re here to help and provide guidance.
Adult Children
Fair vs Equal (also known as Equitable vs Equal) – like what’s considered to be fair may not necessarily be equal. ex. Should the daughter that’s been working in the family business for 10 years receive the same shares as the son who hasn’t worked in the family business at all?
Are the adult children responsible enough to handle the inheritance? Or would they spend it all?
Who works in the family business? Is it all the kids or just one of them?
Family Meeting
Encourage open conversation with parents and kids so context can be provided behind the decisions, there are no surprises and allows the kids to express their interests and concerns.
Facilitate a family meeting with both generations, this will help promote ongoing family unity after death and decrease the chances of resentment later.
Start looking at considerations for a succession plan for the business. (This needs to be documented separately.)
Assets/Liabilities
What are your assets? Create a detailed list of your assets such as:
Home, Real Estate, Investments- Non registered, TFSA, RRSP, RDSP, RESP, Company Pension Plan, Insurance Policy, Property, Additional revenue sources, etc..
What about shares in your business? How does this need to be addressed?
What are your liabilities? Create a detailed list of your liabilities such as:
Mortgage, Loans (personal, student, car), Line of Credit, Credit card, Other loans (payday, store credit card, utility etc.)
Did you personally guarantee any business loans and how does this need to be addressed?
Understand your assets-the ownership type (joint, tenants in common, sole etc.), list who are the beneficiaries are for your assets
Understand your liabilities- are there any co-signors?
Make sure you have a will that:
Assigns an executor.
Provide specific instructions for distribution of all assets.
Consider a power of attorney for use when you’re incapacitated or otherwise unable to handle your affairs.
Always choose 2 qualified people for each position and communicate with them.
Taxes and Probate
How much are probate and taxes? (Income tax earned from Jan 1 to date of death + Taxes on Non Registered Assets + Taxes on Registered Assets, Taxes on Business Shares)
Are there any outstanding debts to be paid?
You’ve worked your whole life- how much of your hard earned money do you want to give to CRA?
How much money do you want to to give to your kids while you’re living?
Consider the following:
The use of trusts.
The use of an estate freeze if you wish to gift while you’re living.
The use of a holdco for effective tax planning.
Once you determine the amount of taxes, probate, debt, final expenses and gifts required, review your life insurance coverage to see if it meets your needs or if there’s a shortfall.
Execution:It’s good to go through this but you need to do this. Besides doing it yourself, here’s a list of the individuals that can help:
Financial Planner/Advisor (CFP)
Estate Planning Specialist
Insurance Specialist
Lawyer
Accountant/Tax Specialist
Chartered Life Underwriter (CLU)
Certified Executor Advisor (CEA)
Next steps…
Contact us about helping you get your estate planning in order so you can gain peace of mind that your family is taken care of.
When should I buy life insurance?
/in blog, life insurance /by Bryan WilsonWhen should I buy life insurance?
No matter what stage of life you are in, Life insurance can benefit you. It will give you peace of mind knowing your loved ones will receive the financial support they need after you die. It is never too soon or too late to buy life insurance.
Types of life insurance
There are two main types of life insurance:
Term – temporary coverage for a set amount of time (10, 15, or 20 years).
Permanent – life insurance that never expires.
Term life is generally cheaper as it only provides coverage for a set amount of time. Whereas, Permanent insurance will cost you more in the short run but may work out less expensive in the long run as your premiums do not tend to increase as you age.
Life insurance in your 20s
In your 20s, you may feel like you are immortal and have many other things on which you want to spend your money. However, you may have responsibilities; student loans that your parents co-signed for or a mortgage with your partner. If something happened to you, your loved ones would be left to pay for that debt; alone. Life insurance could help fill this financial gap.
Life insurance in your 20s is very affordable because you are considered low risk. As a result, you can protect your loved ones for a reasonable premium.
Life insurance in your 30s
By the time you’re in your 30s, you may have several financial responsibilities – including a mortgage and children. If you have only had term insurance up to this point, you may want to consider converting the term to permanent to help give yourself lifelong protection.
Even if you have life insurance through your workplace, you may want to buy additional life insurance. Separate life insurance can help cover you if you lose your job or lock-in rates while relatively young and healthy.
Life insurance in your 40s, 50s, 60s and beyond
At this stage in your life, you may still have a mortgage or dependent children. You may have even bought a cottage or a vacation property. No matter your financial responsibilities, if your estate does not have enough cash to cover your liabilities, it is still essential to have life insurance.
Now is an excellent time to lock in permanent insurance. However, if you find the premiums too high or know you only need life insurance for a set amount of time, term life may still work for you.
Your next steps
Now you know about the two main types of life insurance and why it’s crucial to have some form of life insurance in place, no matter your age. If you’re not sure where to go from here, contact us – we can help you figure out your next steps!
TFSA versus RRSP – What you need to know to make the most of them in 2022
/in 2022, blog, RRSP, Tax Free Savings Account /by Bryan WilsonTFSA versus RRSP – What you need to know to make the most of them in 2022
TFSAs and RRSPs can be significant savings vehicles. To help you understand their differences, we have put together this article to compare:
TFSA versus RRSP – Differences in deposits
TFSA versus RRSP – Differences in withdrawals
TFSA versus RRSP – Difference in deposits
There are four main areas to focus on when comparing differences in deposits for 2022:
Contribution Room
Carry Forward
Contributions and Tax Deductibility
Tax Treatment of Growth
How much contribution room do I have?
If you have never opened a TFSA before, you can contribute up to $81,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the contribution limit is always 18% of your previous year’s pre-tax earnings to a maximum of $29,210. For example, if you earned $60,000 in 2021 then your contribution limit for 2022 would be $10,800 (18% x $60,000). If you earned $200,000, your contribution limit would be capped at the maximum of $29,210.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. In addition, if you make a withdrawal, the amount you withdrew is added to your annual contribution room for the following calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars. Your RRSP contributions are tax-deductible and are made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it is essential to make both RRSP and TFSA contributions is that investment value growth is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation because the investment value growth is tax-free. In addition, when you make a withdrawal from your TFSA, you will not have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred, meaning you will not pay any taxes on your RRSP gains until you withdraw money from your future RRIF account; the account you convert your RRSP into at age 71. As a result, RRSPs are better suited for long-term objectives, like retirement. In addition, since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and not pay much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are four main areas to focus on when comparing differences in withdrawal for 2022:
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. However, if you have an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2022.
Tax Treatment Of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This ability to withdraw funds tax-free is why TFSAs are advantageous 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 before converting it to a RRIF, 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 is essential to know how your withdrawals can impact 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 make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the following calendar year. However, if you withdraw money from your RRSP, you do not open up additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. With this in mind, understanding the differences between these two types of tax-advantaged accounts can help you better plan for future purchases and your eventual retirement.
2022 Financial Calendar
/in 2022, blog, financial planning /by Bryan Wilson2022 Financial Calendar
Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.
Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!
Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.
If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!
Important Dates
Dates to know:
January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.
The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.
Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.
The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.
The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.
Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.
May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.
May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.
The deadline for final RESP, RDSP, and TFSA contributions is December 31.
December 31 is also the deadline for 2022 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.
2021 Personal Year-End Tax Tips
/in blog, Individuals /by Bryan WilsonThe end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
Investment Considerations
Families
Retirees
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward 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.
If you have 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.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
If you are between the ages of 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.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have 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.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses 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. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant 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.
Retirees
Are you 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.
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.
Do you not currently have any pension income? Then, 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.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are 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 are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.