Retirement Tips

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TFSA accumulated savings, RRSP and tax tips – 2019 update

Here’s another update of my previous posts on TFSA (Tax Free Savings Account) accumulation.
Since 2009, one can contribute to a TFSA and any investment income earned is tax free.

I’ve dropped the assumed annual return from 4%  to a conservative 3% due to recent decline and uncertainty in the markets.  Even with this reduced drop over the plan’s life-to-date, and assuming the maximum is contributed each year at the beginning of each year, one can still expect to have over $75,000 by the end of 2019! The magic of compounding and accumulation.

Here’s the link – 2019Jan-TFSA savings accumulation

Chartered Professional Accountants of BC (CPABC) is committed to providing resources to assist individuals and businesses prepare their income tax returns, invest in RRSPs, and plan their finances.   As a service to the public, here’s the link to its latest RRSP and other useful tax tips.

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SPP contributions is now $6,000 annually!

 

Good news for RRSP contributors.

SPP (Saskatchewan Pension Plan), a defined contribution plan and is available to all Canadians, has increased its annual maximum limit to $6,000 from $2,500, subject to one’s available RRSP room.

Members can take advantage of the increased limit starting with the 2017 tax year.

Its performance for the past year on its Balanced Fund is a respectable 9.7%.

Another unique option over other RRSP plans is its method of contributions.   Aside from normal fund transfers and deposits, it also allows for regular credit card (Visa or Mastercard) contributions.

Click on this link for more information – https://www.saskpension.com/

Note::  RRSP contribution deadline is March 1, 2018 for the 2017 tax year.

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Once again, it’s year-end tax planning time …

Before we start to celebrate another festive season, let’s review some essential planning items and act now to make sure we save on 2017 tax dollars.

  • Make sure you’ve paid these bills before the year-end for this year’s tax benefits/credits –
    medical and dental expenses;
    child care expenses;
    spousal support payment;
    political donations;
    charitable donations;
    tuition fees (there are new rules in 2017 extending eligibility for occupational skills courses);
    interest and vestment counsel fees;
    monthly transit pass costs for January to June, 2017 (this credit is no longer available after June 30, 2017).
  • Harvesting tax losses.   Consider selling unwanted 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.  The last stock trading date for settlement of securities this year is December 27, 2017, for both Canadian and US exchange securities.
  • 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.
  • For self employed taxpayers, consider
    – making your intended capital item purchases (such as an automobile) before the business’ year-end to maximize your capital cost allowance.  You are entitled to claim half of the maximum business deductions for the year even though you actually only owned the item(s) for as few as one day!
    – consider paying adult family members a reasonable amount on work they’ve performed for the business for income splitting purpose. It is especially important if you have an incorporated business as the government is looking to changing the tax rules in 2018;
    – if you have discretion over the timing and amount of receipt of non-eligible dividend income, consider receiving them this year rather than later.  Tax rates are increasing.   Although other consideration like tax deferral benefits must also be taken into account.
  • This is the time to see if it makes sense to contribute to your RRSP or spousal RRSP for the current year.   You probably know how much income you’ve earned for the year, and whether a contribution will benefit you in tax savings.
  • Adjust your 4th quarter tax instalment to compensate for possible 2017 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.

Upcoming deadlines –
2017 personal tax filing – April 30, 2018
2017 personal tax filing with selfemployment reporting – June 15, 2018
RRSP contribution deadline for 2017 – March 01, 2018

 

 

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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!

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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

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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!

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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

 

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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.

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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

 

 

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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.