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

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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

 

It’s RRSP Time Again!

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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.

2015 year-end tax saving tips

cutting taxes

 

 

 

Tax rules are getting more complex and cumbersome. That’s why it is important to spend time and make an effort to legally maximize your personal tax deductions and minimize your taxes.

Prior to year-end is a good time to do just that. It’s your opportunity to take advantage of available deductions before they expire or become unavailable for the current year.
For 2015, here are some common tax saving reminders …
1) Paying tax deductible expenses
these deductions are only available when they are paid. Tax deductible alimony payments, child care expenses, investment counsel fees and interest on borrowings for investing or business purpose are common deductible expenses.

2) Paying for items that qualify for tax credits
these payments may give rise to refundable/non-refundable tax credits but only if they are paid within the calendar year. Items include dental and medical expenses, charitable donations, political contributions, children’s fitness and arts program fees, tuition fees, student loan interest and monthly transit passes.

3) Review non registered investment portfolios to crystallize your losses
here’s an opportunity to rid your unwanted losing investments and lock in their losses to offset your other capital gains. These losses can be applied against 2015 as well as available for carry back to any or all of the previous 3 years. All trades must be settled by Dec 24, 2015 for Canadian exchanges and Dec 28, 2015 for the US exchanges. Check for potentially different trade dates for mutual fund dispositions. (Caution – watch out for superficial loss rule which will nullify your losses for tax purpose.)

4) RRSP contributions
you have until February 29, 2016 to contribute to your RRSP or spousal RRSP to qualify for 2015 deductions. If you are turning (or have turned) 71 this year, December 31, 2015 is your deadline for one final contribution to your RRSP.

 

Some 2015 changes in tax rules:
– Indexing of adoption tax credit of $15,000.
– Child care deduction increases to $8,000 for children under 7, $5,000 for children 7 to 16, and $11,000 for children eligible for the disability tax credit
– Child fitness tax credit will be a refundable tax credit starting in 2015.
– A non-refundable Home Accessibility Tax Credit of up to $10,000 will be available in 2016 for expenditures made in 2015. This is available to seniors and persons eligible for the disability tax credit.
– Enhancement of the Universal Childcare Benefit program. The amount has been increased by $60 a month and is taxable to the lower income spouse. At the same time, the children’s credit of $2,255 a year, has been eliminated.

Automate your financial life

automate to organize

Life’s not always a beach.   There’s work to be done and things to plan for before you play.   So let’s start the new year off on the right foot, and make a simple plan for your 2014 saving plan.

Don’t want to have to scramble (again) to deal with last minute financial tasks, like RRSP contribution and tax filing organization?   Well, you can make life easier on yourself by sparing a few moments now to plan ahead.    Here is a financial 5’er list on what to automate now to simplify your life for the rest of the year.

  1. Automate your files for your tax filing papers:   Set up a few folders to handle all the tax papers that should be arriving soon for this year’s tax filing – tax slips, investment activities summaries; donations, medical and other receipts, etc.  Keep these paperwork organized by keeping receipts categorized using envelops and folders.   Make sure you mark them clearly to indicate their paper contents.   A good starting point is to see what receipts were used from your previous year’s filing.
  2. Automate your RRSP contributions (*) for this year:  For many tax filers, this is still a good way to save money and defer/reduce tax at the same time.   Setting up an automatic savings plan for as little as $50 a week will yield you at least $2,600 a year in contributions!;
  3. Automate to maximize your TFSA contributions (*) for this year:  Although your contributions are not tax deductible, the income generated is tax free.   You can save your annual contribution limit of $5,500 by setting up an automatic savings plan of only $106 a week.;
  4. Automate to maximize your RESP contributions (*) for this year:   There’s free money from the government (grants) to help with your child or grandchild’s post secondary education.  Up to 20% of your contributions to a maximum of $500 a year is available per child.   By setting up an automatic contribution of $50 a week will add up to $2,500 a year, and the plan will also be entitled to the maximum $500 grant.;
  5. Automate your donations for this year:  Registered charities prefer receiving regular donations from their supporters than one time donations.   It helps them to budget their operations better and for you, it is a no-brainer way to donate.   You can set up as little as $20 a month automatic donation to yield you a $240 donation receipt at the end of the year.   Check here for information on the super credit available for first time donors.

 

It’s a good idea to set up these automatic savings and out-transfers at the same time as when your paycheques are deposited into your chequing account.   That way, you’ll be more likely to reduce your spending because the money is not in the account anymore.

Now pat yourself on the back for a job well done.   You’re set for a more organized and well planned out 2014!

 

*    You are strongly advised to meet with your financial advisor/accountant/tax preparer to determine your optimal contributions level for your specific circumstance.