Your December To Do List!

Written by Gwyneth James MBA CPA, CGA  Senior Partner

Okay, I know…accounting is the farthest thing from your mind right now, but hear me out. There are just a few items that you need to take care of while you sip your glass of egg nog.

  • If you have a business, don’t forget to take an odometer reading on December 31st.
  • If your business is incorporated, this month is the time to pay yourself a little extra – either as a bonus or as a dividend – to ensure it is added to your T4 or T5 for 2018.
  • As an individual, December is donation time if you want to shore up that tax credit for 2018.
  • Another item that is based on the calendar year is your TFSA contribution, but that rolls over if it’s unused so don’t worry. And you have until March 1st to contribute to your RRSP.
  • If you have non-registered investments that you’d like to realize a gain or loss on, make sure you sell that stock or mutual fund before December 27th.

That’s it! See, not that hard.

Happy Holidays!

Home Buyer’s Plan and Lifelong Learning Plan

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

You’ve been moving around and renting for the past five years or more, but now want to buy a home.  Unfortunately, the only savings you have are in RRSPs.  Don’t cash them in!  The Home Buyer’s Plan (HBP) allows you to “borrow” up to $25,000 of your own savings.  Fill out Area 1 of Form T1036 and take it to your financial advisor.

OR you have decided to return to school full-time.  The Lifelong Learning Plan (LLP) allows you to “borrow” from your RRSPs up to $10,000 a year to a maximum of $20,000.  Fill out Area 1 of Form RC96 and take it to your financial advisor.

These withdrawals will not be taxable and will not have tax withheld, but they must be repaid by making an RRSP contribution and flagging it as an HBP or LLP repayment on Schedule 7 of your tax return.

  1. For the HBP, payments start the 2nd year after you withdrew under the plan.  You have 15 years to pay it all back.
  2. For the LLP, payments starts the year after you cease being a full-time student (to a maximum of four years).  You have 10 years to pay it back.

Any year you miss all or part of the repayment, the balance of the amount that you were supposed to pay is added to your taxable income as if you withdrew from your RRSP.  In some cases, for example a year of very low income, this is an effective tax saving strategy.

There are some restrictions that are beyond the scope of this article related to, for example, RRSP contributions in the 3 months before you withdraw under either plan, the definition of a “first-time homebuyer”, and the type of residence or post-secondary education that qualifies.  Be sure to read up on these or consult an expert.

The Mystery of TD1 Forms Solved!

Written by:  Gwyneth James MBA CPA, CGA  Senior Partner

It’s your first day on the job and you’ve been handed a pile of paperwork to complete and sign plus the employee policy manual to read and a Health & Safety video to watch. In the midst of the chaos, you probably don’t understand – or care – what the significance of the TD1 forms are. But they are important and can cause big problems if they aren’t completed properly.

There’s even a penalty levied by CRA on employees who do not provide their employer with a completed TD1 form within seven days – $25 per day, minimum $100, maximum $2,500!

One of the purposes of the TD1 form is to inform the payroll department about the personal tax credits you usually claim on your tax return. If you are able to claim credits beyond the basic personal amount (examples are Family Caregiver Amount, eligible dependant, or disability tax credit), this form will allow your employer to deduct less tax at source. You will have more money in your hands throughout the year instead of having to wait for a refund the following spring.

Another purpose of the TD1 form is to instruct your employer to deduct additional tax each pay. This is useful if you have rental or investment income or are running a small business on the side. It will reduce the amount you have to pay in the spring when all your sources of income are added together, possibly pushing you into a higher tax bracket.

If you are working more than one job, be aware you can only claim the personal tax credits on one form. For the other employers, you will sign the TD1 form with a zero for the tax credits so every dollar you earn has tax withheld.

TD1 forms are in effect with your employer until you provide new ones, so be sure to complete an updated set if your tax situation changes.

Are You Thinking About Owning a Rental Property?

Written by; Suzanne Cody CPA, CGA

When you earn income from renting a property it can affect many things from a tax perspective. It is important that you are aware of these effects so that you are not surprised when it comes time to file your taxes.

The income from renting personal property can be considered either property income or business income depending on the kinds of and number of services you provide as related to the property. The number of properties you own does not change the way the government views the income but the more services that you provide the more likely that the income will be deemed to be business income. Currently the CRA is taking a long hard look at this type of income especially as it may relate to trailer parks.

Personal income from property (rental income) does not affect the calculation of Canada Pension Plan (CPP) premiums while business income is included in pensionable earnings.

Personal business income is included when calculating both the working tax benefit and medical expense supplements but rental income is not included when claiming these refundable tax credits.

If you are a corporation, rental income can be taxed at much higher rate than income from business. As of 2017, the tax rate for rental income was more than 20% greater than that for business income.

If you would like further information, please call the office at 705-876-6011 or I can be contacted directly at shcody@codyandjames.ca.

Who Should Have a TFSA?

Written by:  Gwyneth James MBA CPA, CGA

The Tax Free Saving Account (TFSA) has been around now for ten years and is pretty popular with good reason – everyone should have one.

There is no tax deduction for contributions to a TFSA. The ‘tax free’ relates to any investment earned by the TFSA. It is tax free even when withdrawn.

For people just entering the workforce the TFSA is the ideal place for your emergency fund. Even $100 a month will provide a nice $2400 emergency fund within two years and get you in to the habit of saving. Then when an emergency happens (like the furnace conks out or the car transmission goes – not the emergency trip to Casino Rama or the 30% off shoe sale) you have the funds to cover it and the $100 a month starts to rebuild it right away.

The TFSA is also the place for everyone to save for those big purchases like new furniture, a vacation or home renovation. Again move money into your TFSA monthly and save for that big purchase.

If you are fortunate enough to have no debt and have maximized your RRSPs then the TFSA can be used to accumulate additional savings for retirement.

If you are retired and have any taxable investment income those funds should be inside a TFSA to reduce the tax bite.

However, be mindful of the maximum contribution limits. The CRA establishes contribution limits each year and they vary each year. It must be clear that no matter how many TFSA’s you have, the contribution limit applies to the combined total of all TFSA’s held by an individual and there are penalties if you exceed your contribution limit.

If you do not have a TFSA, you should – and start using it. If you do have one, good! Now make sure it is put to the best use!

Tax Planning for Retirees

Personal Accounting: a retired coupleWritten by:  Gwyneth James MBA CPA, CGA  Senior Partner

Fall always feels like a time of new beginnings and some folks take time as the days cool to consider their year-end tax planning. Retirees should examine their year-to-date income and consider whether they should take more or less funds from their registered savings accounts (RRSPs and RRIFs).

A few basic reminders:

  1. In the calendar year a taxpayer has their 71st birthday, RRSPs must be converted into a RRIF (or annuity) and an amount withdrawn each year. They can also be collapsed and paid in a lump sum, although this would only make sense if the balance is not too large.
  2. An RRSP can be converted into a RRIF or annuity at any time, but this forces some defined amount to be included in taxable income each year.
  3. Only defined types of pension income qualify for pension splitting. For example, income from company pension plans qualifies at any age, but RRIFs do not until age 65.

Some retirees opt to start withdrawing RRSPs earlier than age 71 which spreads the taxable income over a longer period of time. This can be beneficial in a year where income is expected to be lower than in the future, for example if OAS, CPP or pensions have not yet started. If the funds are not required for living expenses, transfer into a TFSA for later use.

Other retirees convert some of their RRSPs to RRIFs at age 65 to take advantage of the ability to pension split. Pension splitting allows one spouse to transfer up to 50% of their pension income to the other for tax calculation purposes only. This can result in much lower tax owing if that one spouse is in a higher tax bracket than the other. The transferee spouse also qualifies for the $2,000 pension income tax credit.

Each year you elect to do a pension split, complete and sign form T1032 and keep it on file in case CRA asks to see it. Couples who have not remembered to split their pension income can go back and adjust the past three years’ tax returns.

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