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Posts Tagged ‘Tax Planning’

When you get a tax refund, it means you have given Ottawa an interest-free loan of funds you could have used last year to reduce debt or boost your investments.

The good news is that if you think you’ll be in line for a refund, you don’t have to wait. Your district tax office can authorize your employer to deduct less tax from your pay, to reflect deductions that typically trigger a tax refund — things like RRSP contributions, charitable donations, deductible support payments, and childcare expenses.

You might also qualify if you will be making a large RRSP contribution or “catch-up” contribution early in the year, or if you expect to have significant carrying charges, rental losses, or legal expenses incurred to collect child support and/or allowable business investment losses.

Tax-Free Savings Account: Have you got yours?

We’re almost through the year 2009, and you most likely made a RRSP contribution at some point this year. But did you make a contribution to your Tax-Free Savings Account? If you haven’t opened one, you’re missing an excellent opportunity to save and invest without worrying about the future tax burden.

With a Tax-Free Savings Account (TFSA), if you are over 18 years old, you can save up to $5000 each year. You won’t get a deduction, like you would with the RRSP, but you do get a nifty bonus. Any investment return you get – interest, savings, or capital gains – is not taxed, not while it builds up inside the plan, and not when you withdraw it. This is a great companion strategy to help pay for education, plan for retirement, and buying a home. You can even set up a TFSA to help you budget for Christmas presents and annual vacations.

If you felt the crunch of the recession this year, and weren’t able to make a TFSA contribution, don’t worry. Any unused room from this year will carry forward. So if you only made a one-time $50 deposit into your TFSA, you still have $4950 in contribution room that carries forward to 2010. This means you have a total of $9950 of contribution room for next year. If you don’t contribute at all in 2010, you will have contribution room of $14,500 in 2011.

Another important item: if you are saving your TFSA for future use, the withdrawals won’t affect any income-tested benefits. The Canada Child Tax Benefit, Old Age Security, and the Guaranteed Income Supplement aren’t altered when you make a withdrawal.

If you are thinking about making some big personal and financial changes next year, the TFSA is definitely a good starting point. Keep in mind, though, that you need to put together a financial plan, and find out where the TFSA fits in, in order to get the most out of it.

Same-Sex Couples and Tax/Estate Law

Under the Income Tax Act Canada, all common-law relationships, either opposite- or same-sex, are treated equally.

Common-law partners

Same-sex common-law partners are treated the same as opposite-sex common-law partners. Same-sex common-law partners are eligible for the same tax benefits, and are subject to the same obligations as married couples and opposite-sex common-law couples. (more…)

Don’t Keep Waiting ‘Till April To Get Your Money Back

As we get closer to the end of October, the spectre of the RRSP contribution looms ever closer. If you’re like most people, the end of the year means scraping together for gifts – and RRSP contributions. My clients are familiar with my philosophy on RRSP contributions: Make them early and make them often. But I don’t just flog RRSPs because they promote retirement savings and give you a shot at a nice tax refund. I promote RRSPs because they can help increase your take-home pay.

If you aren’t up to date on your contributions, don’t feel too guilty. Most Canadians play catch-up with last year’s RRSP contributions after the New Year. The problem with this strategy is threefold:

Every dollar of income taxes are subtracted from your pay is one less dollar you can put to work for you. Instead, it’s being put to work for the government.

When you file your tax return, and get a refund, you have informed the government about the deductions and credits you normally claim throughout the year (e.g. Those generated by RRSP contributions, tuition & education expenses for your child, deductible interest, etc). To lower the amount of income tax deducted from your paycheque, tell Canada Revenue Agency about these deductions and credits ahead of time.

Instead of playing catch-up with your RRSPs, set up an automatic withdrawal plan to transfer money from your bank account to your RRSP investment.

Example: Your usual RRSP contribution each year is $6000. Instead of making a lump-sum contribution, you break up the contribution into $250 payments that are invested bi-weekly. Not only is this more manageable, your first $250 has had one year in the market to grow. The next contribution has one year less two weeks, etc.

It makes more sense to have the withdrawal come out the same day your pay is deposited into your bank account. This way, you won’t be tempted to spend it. The resulting increase in your take-home pay should be used towards building your savings automatically. If you then deposit that money in a Tax Free Savings Account (TFSA), not only have you avoided having to pay tax on the income, you also won’t pay tax on any of your investment growth. As with all investments, this should be done automatically as well. Your monthly budget will be the same, but you will build a decent investment portfolio instead of waiting for the government to give you your own money back.

Death and Taxes: Estate Planning Mistake #3

There’s a lot of misinformation floating around about how certain assets are taxed when the owner dies. I’ve heard tell that RRSPs are not taxed if beneficiaries are named on the RRSP application. This is only partially true and if you think you’ll be able to leave RRSPs to your adult child with no tax consequences, they are in for an unpleasant surprise. (more…)

AndrayDomise.com

Posts Tagged ‘Tax Planning’

Getting Your Tax Refund Up-Front

Tax-Free Savings Account: Have you got yours?

Same-Sex Couples and Tax/Estate Law

Under the Income Tax Act Canada, all common-law relationships, either opposite- or same-sex, are treated equally.

Common-law partners

Don’t Keep Waiting ‘Till April To Get Your Money Back

Death and Taxes: Estate Planning Mistake #3

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