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.

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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