Home Accessibility Tax Credit

The Home Accessibility Tax Credit is a non-refundable federal tax credit of 15%, for expenditures made to a maximum of $10,000 on home renovations made to an eligible dwelling that improve accessibility, mobility or security for a senior or a person with disabilities.

Do keep all supporting documents and receipts as Canada Revenue Agency may ask for review to validate amount claimed.   Details of the tax credit and its eligibility click here.

It appears the same expenditures may also qualify as medical expenses if they qualify.

And for BC residents … you’ll probably also benefit from the provincial Home Renovations Tax Credit of 10% for the same expenditures, as mentioned in my earlier blog from November, 2016.

Truly a rare occurrence on spending where you may potentially have a triple win from the taxman!

CPABC’s RRSP tips for 2016 tax year

As a public service, CPABC is providing resources to assist individuals and businesses prepare their income tax returns, invest in RRSPs, and plan their finances. CPABC’s RRSP and tax tips for the 2016 tax year include important information pertaining to income, deductions, and tax credits.

Here’s the link on everything RRSP: www.rrspandtaxtips.com

contribute to SPP

spplogo

Yes you can, contribute to a SPP with your RRSP room!

Did you know that you can contribute to a Saskatchewan Pension Plan (SPP) even if you don’t live in Saskatchewan?   Yes (Canadian) folks, this is absolutely true.

Why SPP?

I like this plan because:
1)  it is easy to join;
2)  it is easy to contribute –
– annual maximum contribution is $2,500, which you can opt for monthly contributions using your credit card, and
– an annual additional transfer-in from an existing RRSP of up to $10,000;
3)  their management expense at .96% for their balanced fund is decent and lower than most managed mutual funds;
4)  their balanced fund return is decent.   Average return over the 30-year period since inception is 8.1%, with a respectable 5-year average of 7.6%.  Check out the full history here.   (Of course, you need to keep in mind that these rates are not guaranteed going forward.   They just show the plan’s past performance in investment returns.)

So give the SPP some serious consideration, especially if you are considering long term retirement investing.

And happy 2017 planning!

It’s time for a year-end tax planning check-up

It’s amazing how time flies, but we’re almost near the end of another year.   And before we start to celebrate another festive season, let’s review some essential planning items and act now for some additional tax saving for 2016.

  • Harvesting tax losses.   Consider selling investment losers in your non registered portfolios to use as offsets to your capital gains.   Any unused losses for the current tax year can also be carried back three years and forward indefinitely.
  • Good to hold off buying any mutual funds until the new year.   This will avoid any possible surprising and unanticipated income distribution even if you owned the funds for a month or less.
  • Pay these bills before the year-end for 2016 tax benefits/credits –
    medical and dental expenses;
    child care expenses;
    spousal support payment;
    political donations;
    charitable donations;
    investment counsel fees.
  • For self employed taxpayers, consider making your intended capital item purchases (such as an automobile) before year-end to maximize your 2016 capital cost allowance.  You are entitled to claim the maximum business deductions for the year even though you actually only owned the item(s) for a month or less.
  • This is the time to see if it makes sense to contribute to your RRSP for the current year.   You probably know how much income you’ve earned for 2016, and whether a contribution will benefit you in tax savings for the year.
  • Adjust your 4th quarter tax instalment to compensate for possible 2016 over or under payment.
  • It’s always wise to contribute to your TFSA if there’s excess cash for savings and investments.   Doing so in your TFSA will help you avoid taxation on any investment income generated from those contributions.
  • The Home Renovations Tax Credit for seniors and persons with disabilities is still available for eligible individuals.   It’s worth 10% of eligible renovation costs to a maximum of $1,000 in tax credit.    All documentation must be available on request to support the claim.  Details available on the BC Government website.  (* please also see my blog of 2017/02/26 for the Feds’ version of this tax credit.)

And new in the CRA pipeline –

  • Disposition of your Principal Residence – new reporting rules for 2016 and beyond.   Individuals must now report their principal residence disposition occurring in the year.  CRA has published new guidance on its website for compliance and essential reporting.

Deadlines –

  • 2016 personal tax filing – May 1, 2017
  • 2016 personal tax filing with self employment reporting – June 15, 2017
  • RRSP contribution deadline for 2016 – February 28, 2017

 

How much is enough in retirement?

Well, it depends.

The rule of thumb that you only need 70% of your pre-retirement income is too simplistic.   For some people, it is sufficient.   But for many, it is not.

A good start in determining how much you’ll need in retirement is to break down your budget into two categories of spending –

  • necessities (basic food, shelter, clothing, medication, etc.), and
  • discretionary (travel, dining out, entertainment, money for a new car every years, etc.)

If your basic needs add up to 50% of your after-tax income, you will have up to another 50% for discretionary spending.  So if you choose to spend only 25% on discretionary items, then you will need a total of 75% of your current income in retirement.

And remember to take into account in your calculation that certain expenses will decline or even disappear in retirement.   For example, you will no longer have to make CPP or EI contributions, income tax will likely decrease, and the need to buy work clothes will be a thing of the past.

On the other hand, certain costs will likely increase in retirement.    Healthcare and hobby related expenses will likely go up.   So include these items in your retirement budget.

The last bit of planning is to make sure you will have enough income to take care of your retirement needs when you retire, before you retire.

Canadian Tax Myths and Tips

Canadian tax filings can be daunting.   Here are a few articles to help you through the process this season that I think is worth your read.  The first two from CBC News and the 3rd from a recent blog post from the Women’s Financial Learning Centre. –

  1. www.cbc.ca/news/business/taxes/10-tax-filing-myths-that-could-cost-you-money-1.1266240
  2. www.cbc.ca/news/business/taxes/tax-season-2015-10-ways-to-attract-a-cra-auditor-s-attention-1.2969196
  3. www.womensfinanciallearning.ca/2016/03/09/5-tax-filing-tips-to-save-you-time-and-money/#more-1802

 

 

It’s RRSP Time Again!

ReviewYrInvests (640x471)

Needless to say, it’s that time of the year again when some of us are scrounging for money and time to invest to our Registered Retirement Savings Plan (RRSP).

If you’re a procrastinator and haven’t got around to contributing yet, here are a few things to keep in mind.

• Deadline for this year is 11:59pm Monday, February 29, 2016.

• If you have high income in 2015 and projected low income for 2016, you may want to use RRSP contributions (2015)/withdrawals (2016) to equalize your income of both years to save on the overall income taxes for the combined two years.

• Contribute to a spousal RRSP if you’re the high income earner in the household. This will enable you the tax deductions and equalize both your retirement income down the road on retirement.

• If you have no or low income in 2015, you probably want to skip the contribution altogether for this year. This is especially applicable if you anticipate higher income years in the near future which can benefit more from your contributions then.

• Do not exceed your RRSP contribution limit. Check your Notice of Assessment for the maximum amount you’re allowed. There’s a maximum over-contribution limit of $2,000 and going over will end up attracting a steep penalty.

Other considerations

• Don’t rush into the wrong investments when you make your RRSP contributions. Temporarily park your contributions into a cash account within your plan. Take your time and make your investment decision later when you’ve done your due diligence.

• Consider appointing a beneficiary.

• Keep in mind any RRSP withdrawals are taxable in the year of withdrawal.

• Keep in mind any spousal RRSP withdrawals may be taxable by the higher income earner if the rules are not followed. Consult with your advisor before making this move.

• You can still make contributions to a spousal RRSP after you turned 71 if you have the room, providing your spouse is not yet 71.

• And remember your RRSP is, first and foremost, savings for your retirement. Do not use it as a short term savings vehicle.

Save your money $$$

Here are some concrete saving ideas to help you keep more of your money.   Read my recent posts on how to save over $42,500 in just 7 years, even with only a 4% rate of return!

1)   Do not impulse buy, only shop for what’s on your prepared list;
(Studies have shown that as much as $3,700 a year is wasted on unnecessary purchases.)

 

2)   Lunch in (not out) more often;
(A average savings of at least $5 per meal when not lunching out.  Do this twice a week and you will save $520 a year.)

lunch in, save money

lunch in, save money

 

3)   Stop food waste, be creative with leftovers;
(Studies have shown that as much as 35% of our food ends up being wasted, or $2,200 year.)

 

4)   Pay your credit card bills on time;
(It’s obvious, many dollars can be saved when you stop those 18% to 20% interest charges levied by your credit card companies.)

no more credit card late payments!

no more credit card late payments!

 

5)   Look for cheaper phone plans;
(Even a savings of $20 a month in your phone plan will save you $240 a year.)

 

Add up all your savings and you are well on your way to top up your TFSA for a more secured future!

see your money grow!

see your money grow!

What are you doing for the rest of your life?

It’s time to take a reality check.   We are all living longer.  So the answer to the question ‘what are you doing for the rest of your life?’ takes on more importance as we age.

Today, many younger retirees are transitioning back from full retirement to part-time entrepreneurship.   How satisfying is it to engage in an activity  you love and making a business out of doing so?   Channeling your passion into something profitable is always an exciting venture.

Some fun and unique businesses that’s been popping up include:

touring
1)   be a local tour guide if you live close to a popular tourist location.
For example, a number of retired Vancouverites are guides and commentators.  Leading small and specialized groups on nature hikes, architectural walks, and local art crawls.

   sharing diy experience
2)   presenting seminars in your area of knowledge, experience, expertise at local colleges and community centres;

   handmade soaps
3)   making and selling craft products and unique services.
For example, a retired teacher is now an entrepreneurial soapmaker selling fragrant soaps online as well as holding workshops on how soaps are made.

So go ahead, think of a way to marry your hobby or interest into something profitable now that you have the time!