2016 Tax Tips
for 2015 Filing Year
Did you know
that last tax filing season, the average tax refund was just under $1,800, or
about $150 a month? That’s a lot of money to give to the government on an
interest-free basis. Yet that’s what almost 17 million tax filers did and CRA
paid back approximately $30 Billion dollars. Astute tax filers will want to get
that money back working for their own futures quickly this year. If that
includes you, do file your tax return early and accurately. But make sure you
have all your documentation, first.
Make a point of acquiring and reviewing tax software if you are
NETFILING this year. If you hire a pro, make an appointment as soon as possible
to determine what is needed to meet new tax filing rules and discuss what has
changed in your personal affairs. Births, deaths, marriages, divorces, new jobs
and job terminations – all can impact the tax return.
From Proprietorship to Corporation - When is the Best Time to
days of summer are a great time for the Tax Specialist to review 2014 returns
for Proprietors and Partnerships to determine whether it is time for some of
these taxpayers to consider incorporating their business and removing their
business from their personal tax return. But when is the best time to
The answer to this question varies depending on the needs of the
financial needs of the individual taxpayer, the vision for their business and
their ability to take their business to its next level of growth; however, a
few basic questions will help determine if you should be approaching your
client with the suggestion, from a tax savings point of view:
1. Is the taxpayer currently paying a higher effective income tax rate
than the corporate tax rate for the province of residence?
The current federal tax rate for a Canadian Controlled Private
Corporation is 11% on the first $500,000 of net income. Provincially, rates
vary by province from a low of 0% in Manitoba to 4.5% in Ontario and PEI. To
put this in perspective, a net corporate income of ~$34,000 in Ontario attracts
about a 15.5% effective tax rate. If this corporate tax rate is lower than the
proprietor’s personal income tax rate, it may be time to look at incorporating.
2. Is the taxpayer earning more money in the proprietorship than is
required to meet their personal and household needs?
A corporation’s lower income tax rate is only effective if the earned
income remains within the corporation. If the proprietorship is earning $100K
and the taxpayer needs $100K, it is unlikely that a corporation is beneficial
for tax purposes.
3. Is there a liability or asset protection benefit to incorporation?
Even if there is no tax benefit to incorporating, there may be a benefit
from a liability or asset protection viewpoint. A corporation is a separate
legal entity; therefore, the individual cannot be held personally liable for
debts incurred within the corporation. This protection can go a long way to
protecting family wealth in the event of a business mishap.
4. Is there currently income-splitting potential within the
In most cases the answer to this is no. However, within a corporate
structure different classes of shares can be issued, opening up various
dividend options. This will then allow income sprinkling among family members
to take full advantage of individual graduated rates, exemptions and
5. Is your client financially disciplined enough to manage a fiscal
One of the underlying advantages to operating through a corporate
structure is the ability to establish a non-calendar fiscal year. This opens up
income deferral options, allowing the taxpayer to retain more wealth longer by
utilizing ITA S. 78(4).
Example – S. 78(4)
- Acme Corporation has a fiscal year-end of July
30th and elects to declare a bonus payable of $30,000. The bonus is expensed on
the corporate tax return as of July 30, 2015.
- The bonus is then paid to the individual on
January 3rd, 2016 – within the 179 day requirement of S. 78(4).
- The bonus is reported on the T4 slip for 2016
and reported on the personal tax return filed April 30, 2017, resulting in a
21-month deferral of personal income taxes.The move from proprietorship to corporation may hold many benefits for
the individual taxpayer and at the same time opens up many tax planning and
wealth retention opportunities for the individual and their Tax Specialist to
explore as the business continues to grow.
Tax Specialists Brief your Clients About CRA Fraud And E-Mail
It’s a warm
summer day. You’re relaxing in the yard and wondering what could possibly make
this day better. And then, out of the blue, you receive an e-mail from Canada
Revenue Agency stating that they’ve discovered they owe you money! Could
this be true? Or, do you need to wake up and smell the coffee . . .
.? There are two scams in particular to brief your clients about: Refund
and Collection Scams.
Refund Scams. Even though hundreds of millions of
individuals use e-mail daily, CRA does not. So it’s pretty
much guaranteed that the e-mail you just received asking for your
banking information so that CRA can deposit the funds into your account, is not
legitimate. In fact, when you go to check that the funds have been
deposited, you will find that you have become a victim and all your funds are
While scams like this are not new and have been happening probably as
long as there has been e-mail, they seem to have been especially aggressive
this year; CRA currently lists 22 variations of e-mail scams that are
being used to extract money from your clients fraudulently.
In addition to e-mail schemes, scammers also use text messages, online
form submissions and, in some cases, good old snail mail!
So, a key tax literacy message for your clients is this: CRA does not
communicate with taxpayers by electronic means outside of the “My Account” and “My
Business Account” portals on their website.
Collection Scams. Reports of telephone calls purportedly
from CRA Collections have been making the news recently. According to the CRA
newsroom, these calls are very aggressive in nature and go as far as
threatening court charges, jail or deportation. The caller demands immediate payment
by credit card and, if no credit card exists, demands the immediate purchase of
a prepaid credit card.
So what should your clients do if they receive one of these types of
communications? CRA recommends that anyone potentially the victim of a fraud ask
themselves these questions:
- Is there a reason that CRA may be calling? Do I
have a tax balance outstanding?
- Is the requestor asking for information I would
not include on my tax return?
- Is the requestor asking for information I know
the CRA already has on file for me?
- How did the requestor get my e-mail address or
- Am I confident I know who is asking for the
information?Remember, you can always turn the tables. Ask the caller for the amount
on line 150 of your latest tax return. If they can’t or won’t answer that
question, they are not from CRA.If you or your clients have received suspected fraudulent communications
from someone, contact the Canadian Anti-Fraud Centre at www.antifraudcentre-centreantifraude.ca
or toll-free at 1-888-495-8501.
Bank of Canada cuts rates again
OTTAWA (Reuters) - The Bank of Canada cut its benchmark interest rate by 25
basis points to 0.5 percent on Wednesday, saying an unexpected economic
contraction in the first half of the year had added to excess capacity and put
downward pressure on inflation.
"Additional monetary stimulus is required at this time to help return
the economy to full capacity and inflation sustainably to target," the
central bank said in the interest rate decision that accompanied its quarterly
Monetary Policy Report.
Bank of Canada Governor Stephen Poloz had expected a recovery by now from
the oil price crash that hit Canada's oil-exporting economy in the first
quarter, but that projection proved far too optimistic.
The bank now expects the economy to have shrunk at an annualized 0.5 percent
in the second quarter instead of growing by 1.8 percent as Poloz had projected
in April. It contracted 0.6 percent in the first quarter.
The bank did not use the word "recession" but the projection of
negative growth in both the first and second quarters meets a widely accepted
definition of a recession.
The market had been split on whether the bank would cut rates for the second
time this year after holding them steady for about four years. The bank had
delivered a surprise cut in January that was designed to counter the dive in
oil prices, and markets had reacted sharply to that move.
They did so again on Wednesday with the Canadian dollar dropping to a
six-year low, and Canadian government bond prices rising sharply and
outperforming U.S. Treasuries. [CAD/]
The Canadian dollar tumbled to its weakest level - C$1.2929, or 77.35 U.S.
cents - since March 2009 against its U.S. counterpart, hurt also by predictions
that the U.S. Federal Reserve will raise rates this year.
"The currency is in uncharted waters here," said Derek Holt, vice
president of economics at Bank of Nova Scotia, citing a risk that the Canadian
dollar weakens to as low as C$1.30 against the greenback, then diving to
"If the Fed is hiking, we think by September, and the Bank of Canada
appears to be leaving the door open to additional rate stimulus, all bets are
The bank said excess capacity in the economy grew significantly in the first
half and would continue to do so in the third quarter, even with expected
economic growth of 1.5 percent.
It therefore pushed back to the first half of 2017 its projection of when
full capacity will be reached and inflation return to the bank's 2 percent
target. Its previous projection had been for the end of 2016.
The bank acknowledged elevated vulnerabilities from a hot housing market in
Toronto and Vancouver and from rising household debt, a key factor that had
spurred some economists to advise against a rate cut. It said, however, that
the economy was undergoing "a significant and complex adjustment" and
required additional stimulus. It continued to see a soft landing in housing.
Perhaps the biggest disappointment for Poloz, former head of the federal
export agency, has been what the bank said was a "puzzling" weakness
in non-energy exports. He had hoped such exports would help overwhelm the
negative effects of lower oil prices on business investment and incomes.
But the bank said its base-case projection assumes "that this
unexplained weakness is temporary and that the relationship between exports and
foreign activity will reassert itself in the coming quarter".
The bank said the main dangers to its
inflation outlook were a larger-than-expected decline in oil and gas
investment, weaker non-energy exports, imbalances in the Canadian household
sector and stronger U.S. private demand.
OAS to Increase by $1.13
Seniors will see
an increase in their monthly OAS cheques in July, but they’ll have to resort to
the 99-cent menu to buy anything with the extra pension.
Old Age Security is indexed quarterly and seniors have seen no increases since
October of 2014.
The maximum OAS (for those who have been in Canada at least 20 years and
started on their 65th birthday) increases from $563.74 to $564.87 – an increase
of $1.13 per month or 0.2%. Seniors who qualify for the Guaranteed Income
Supplement or Allowance will also receive the 0.2% increase beginning in July.
the US Vacation Property
With real estate prices
soaring in the US and the Canadian dollar falling in value against the greenback,
Canadians who invested in a vacation property in the US may be tempted to sell
their US cottage and purchase a Canadian cottage instead.
important to understand the tax consequences on both sides of the border before
an example to illustrate: Sarah and George purchased a home in
Phoenix in 2011 for $190,000US ($191,000CAN), including costs. Today, the home
is worth $290,000US (about $358,000CAN). This represents an accrued gain of
$167,000CAN (a $100,000 US gain in the States). The value of the couple’s home
in Canada, meanwhile, has increased only $20,000 over the same time
period. What are the tax consequences if the couple sells the US property and
uses the proceeds to purchase a cottage closer to home?
of the US property will create a taxable capital gain to be reported on a US
return ($100,000 US). In Canada, the capital gain could be minimized by
designating the US property as the couple’s principal residence for all but one
year from 2011 to 2015. However, the elimination of the capital gains tax on
the Canadian return comes at a price. If the gain is taxable in Canada, the US
taxes paid could be claimed as a foreign tax credit.
the gain is tax-free in Canada, the foreign tax credit cannot be claimed. At
the same time, claiming the US property as a principal residence means the gain
on their Canadian home becomes taxable.
the US tax cannot be eliminated, the only way to ensure that the same gain is
not taxed in both jurisdictions is to make sure that at least $100,000US of the
capital gain is taxed in Canada in the year of sale. That’s about $123,000CAN,
depending on the exchange rate at the time of the sale.
$167,000CAN gain, 26% of the gain could be exempted and the couple could still
claim the foreign tax credit. By choosing to designate the US property as their
principal residence for one year, 33% ([1+1]/6) of the gain would be exempt in
Canada, limiting the foreign tax credit claim.
choosing not to designate the US property as their principal residence, 1/6 of
the gain would be exempt, allowing the full foreign tax credit.
course, in this or any other case, the actual amount of taxes payable in the US
and Canada would have to be determined to ensure that choosing not to claim the
principal residence exemption for any of the years owned results in the lowest
overall taxes payable.
type of transaction, therefore, should be reviewed well in advance by a Tax
Services Specialist to get the best tax results over time for the sale or
deemed disposition of both residences.
Two-Parent Families With Kids: $85,000 Is Median After Tax Income
The Canadian Income
Survey for 2013
for 2013 was released by Statistics Canada on July
8. While things are virtually unchanged from 2012, some interesting facts
emerge about the income levels earned by Canadian families
The survey defines market income as “earnings, private pensions as well
as income from investments and other sources such as support and disability
payments”. After-tax income is defined as the total of market income and
government transfers, less income tax. The survey also defines those who
live in “economic families”, as groups of two or more people who live together
in the same dwelling who are related by blood, marriage or common-law,
adoption, or in a foster relationship. For the purposes of this article,
we’ll call all others, “singles”.
It is clear that when it comes to making ends meet, the numbers squarely
favor economic families over singlehood:
- Senior families. Where
the highest earner in the family was 65 years or older (senior families) median
after-tax income was $52,500 in 2013. Singles in this age group has
after-tax income of $25,700.
- Non-senior Families. Median
after tax income in this group was $77,100; for singles in this group the
after-tax income was $29,800.
- Parents with Children. . Two-parent
families with children had median after-tax income of $85,000. Lone
parent families had median after tax income of $41,700, with families headed by
a woman earning slightly less: $39,400.According to the survey, the median amount of income tax paid, including
both federal and provincial tax, by non-senior families was $11,700 in 2013; in
contrast, the median paid by senior families was just $3,100.How much do top earners make? The top 10 percent of earners are economic
families and singles with an after-tax income of more than $130,600. And in
that top decile, average after-tax income was $183,600. After taxes,
Canadians in the highest decile had 23.7% of all after-tax income in
Canada in 2013, while the four lower deciles together accounted for 19.8% of
total after-tax income.The bottom line for all taxpayers – regardless of earning level - is
that what you keep is more important than what you make. What can tax and
financial advisors do to help their clients accumulate, grow, preserve and
transition more wealth, as prescribed under a Real Wealth Management™ model?
Here are some suggestions for your next discussion with your clients:For two-parent families: Two-parent families are able to take advantage
of the Family Tax Cut, first introduced for the 2014 year. By averaging out
family income, two-parent families whose incomes are in different tax brackets
are able to retain up to $2,000 in their pocket that would otherwise go to the
government.For example: A two-income family with parents earning $75,000
and $25,000 respectively can take advantage of the FTC and reduce their
combined tax bill by about $1,330. These additional funds might well be best
saved within an RESP, (Registered Education Savings Plan) to take advantage of
government grants and bonds available under the plan as well as the tax
deferred income accumulation opportunities.For single and two parent families: Both types of
economic households – singles and couples - will be able to take advantage of
the enhanced Child Care Expense deductions in tax year 2015, with
increased limits of $7,000 for children under seven and $4,000 for children
from 7 to 15 years of age. In addition, the Enhanced Universal Child Care
Benefit has increased to $160 per month for children under 6 years (from $100),
and $60 per month is now available for each child from 6 through 17 years of
age starting in 2015. Lump sum payments for the enhanced amounts for of $60 a
month for all children under 18 are being paid retroactive to January 2015 this
week. Investing those sums into a child’s education savings or the
parent’s TFSA are both great ways to leverage tax efficient investment
opportunities for future financial freedom.They may also often benefit from an increased monthly refundable Child
Tax Benefit as a reduced family net income has the potential to increase or
create access to the monthly refundable Child Tax Benefit. With CTB claw
back rates at 12.2% for one child up to 33.3% for three or more children, the
effective return on an RRSP investment for these families can be very high.For single non-parents: Utilizing tax brackets strategically remains
the best option for single, non-parent taxpayers. These individuals can
maximize the use of RRSPs to reduce their income to a lower bracket, thus
paying less tax annually. When taxable income has reached the lowest bracket,
maximizing TFSA contributions provides further options for retirement savings
and security.For seniors: In addition to being able to claim the Age Exemption
amount of $7,033, seniors can also be pro-active from a tax point of view by
structuring their income levels advantageously by triggering or deferring OAS
and CPP benefits. Furthermore, maximizing tax benefits through pension
splitting for married or common-law seniors reduces the overall tax burden when
private pension income from RRSPs or RRIFs becomes taxable.
Steps To Calculating 2015 TFSA Contribution Room
A new version
of form RC343 has been released by the CRA to calculate TFSA contribution room
for 2015, taking into account the new 2015 contribution limit of $10,000.
with your TFSA contribution room as of January 1, 2014
Subtract any TFSA contributions made in 2014
any TFSA withdrawals made in 2014
$10,000 (your new TFSA contribution limit for 2015)
you’ve already made TFSA contributions for 2015, subtract those
Here’s an example:
had TFSA contribution room of $12,000 as of January 1, 2014, including
the $5,500 of new contribution room for 2014. She made a $10,000 TFSA
contribution in 2014 and withdrew $15,000 that same year. She has not made any
contributions in 2015 yet. Following the steps outlined above, her 2015
TFSA contribution room is:
5. - $0
Beware of TFSA Traps: The biggest trap, other than holding non-registered investments outside a
TFSA when there is contribution room available, is recontributing to the TFSA
in the same year as the withdrawal is made. Withdrawals do increase TFSA
contribution room, but not until the beginning of the following year.
example above, after her $10,000 contribution, Joni’s TFSA contribution room
for 2014 was reduced to $2,000. Her $15,000 withdrawal did not open up
contribution room until January 1, 2015. If Joni had re-deposited the $15,000
in 2014, she would have had a $13,000 excess contribution. All excess
contributions are subject to a 1% penalty tax for each month they remain in the
these reasons, it’s important for wealth advisors to encourage their clients to
seek their assistance or consult with A Tax Services Specialist before
withdrawing money or recontributing it to a TFSA.
Family Tax Cut: Was Spouse A Student?
Last week, CRA reminded families to apply
for the generous new Universal Child Care Benefit (UCCB) being delivered to
families this week. But there may also be more good news: enhanced Family
Tax Cut dollars available for the 2014 tax filing year for families in which
one spouse was a full- or part-time student... $2 to $750 more in fact.
calculations for the Family Tax Cut have recently been adjusted to take into
account the unused portion of tuition, textbook and education credits
transferred from a spouse or common-law partner. The result is an additional
refund of somewhere between $2 and $750, according to the CRA, which will do
the calculation automatically if it looks like the family might qualify for the
sure, however, qualified Tax Services Specialist should be
consulted to review the calculations for their clients who have made a
tuition, textbook and education credit transfer to their spouse on line 326 of
the 2014 T1 return and determine if any other adjustments should be made to the
tax return. Then, find out what your estimated Family Tax Cut will be in
2015 to maximize your investment planning opportunities.
The Rule of
Written by Sarah Milton
“Compound Interest is the
eighth wonder of the world.” – Albert Einstein
Einstein described compound
interest as the eighth wonder of the world because he felt that those who
understood it, earned it and those who didn’t, paid it. Compounding is what
makes saving early and saving regularly such a powerful part of building wealth
and it’s also what makes it so hard to get out from under the mountain of
consumer debt that so many of us accumulate. In an nutshell, compound interest
is earning (or paying) interest on interest. When you earn interest at a
compounded rate, your money grows faster because you are earning interest on
your total balance (principal + interest) rather than on the principal alone.
Similarly, when you pay interest at a compounded rate (as you do with credit
cards) your interest charges grow much faster and your debt load gets larger.
We can see the power of compounding in
the table below, which shows how $1000 earning 5% annual interest grows
over time. The first column shows how the $1000 would grow earning 5% simple
interest (earned on just the $1000 principal) and the second column shows
how it would grow earning 5% interest compounded annually (earned on the
principal + interest).
5% SIMPLE INTEREST
5% COMPOUND INTEREST
The Rule of 72
The rule of 72 is a simple
way to estimate how long it will take your money to double in value at a given
interest rate. If you divide 72 by the annual interest rate, the answer is the number
of years it will take to double. For example, 72 divided by 5 is 14.4. This
means that, as you can see in the table above, it takes just under 15 years for
$1,000 to become $2,000. 15 years later (in year 30) the money has doubled
again to be just over $4,000 and, 15 years after that (in year 45) it has
doubled again to become more than $8,000. In year 60, it will have doubled yet
again and become $16,000. Using this rule, it’s clear to see that both time and
interest rate are two key factors in building wealth. At 8% interest, your
money will double in 9 years (72 divided by 8 = 9) but it will take 36 years to
double earning 2% interest. For a 20 year old, $100 invested at 7% is worth
$2,100 at age 65. For a 30 year old, that same $100 invested at the same rate
is only worth $1,068 at age 65 and for a 40 year old, $100 invested at 7% is
worth just $543 at age 65. This means that, at 40 years old, even though I’m
only twice the age of the 20 year old, I have to save four times as much each
year in order to achieve the same level of wealth at age 65. It’s a concept
that I wish I had understood as a teenager because I’m pretty sure it would
have motivated me to manage my money differently!
At the end of the day,
saving is always a very personal decision: the choices we make about whether to
save, where to save and how much to save, vary enormously from person to
person. However, all too often, I hear people in their twenties saying that
they’ll wait to save until they’re older because then they’ll be earning more.
When you consider how powerful a factor time is in the wealth building
equation, it just doesn’t make sense (especially when you consider that just
because you’re earning more doesn’t mean you have more discretionary income).
If you can do as much with $25 at 20 as you can do with $50 at 30 or with $100
at 40, it makes sense to start the saving habit early.
Even if you feel like you’ve “missed the boat”
because you should have started saving years ago, remember that whatever you
save today has a greater power to grow than money you save next month, next
year or 3 years from now. We can’t change our past choices but we always have
the power to choose to change our financial future by making different choices
Everything You Need to Know
Written by Jim Yih
Most Canadians choose a
Registered Retirement Income Fund (RRIF) as their retirement income option
. A RRIF is a
comfortable transition because of its similarity to an RRSP. A RRIF provides a
high level of control over the investments in your retirement plan, the
advantage of tax-free growth of assets within the plan, as well as maximum
flexibility in establishing an income stream. RRIFs come in a number of shapes and sizes
The first decision is
The first thing you will
need to determine is how much income you need
or want. This
decision will have the greatest impact on the longevity of your money. If you
spend too much too fast, you will run out of money. Even if you don’t need or
want the extra income, you have the minimum income rules to contend with.
You can tailor your income
to your needs, subject to minimums imposed by the federal government. If you
need steady monthly, quarterly, or annual income, it’s available. If you
require a large lump sum for a major purchase, travel, or some other purpose,
that’s available too.
RRIF withdrawal rules
This table outlines the minimum withdrawals
RRIFs established after 1992, as set by the government. Before age 71, the
minimum percentage payout is worked out in the following way: 1÷(90 – your
RRIF minimums were once again changed in 2015
So if you’re 65, your minimum withdrawal would be
1÷(90-65)=4%. With a $100,000 RRIF, that amounts to $4,000. Once you reach age
69, the following schedule applies:
2015 and later
1992 to 2015
The second decision is what
to invest in
offer plans that can hold Guaranteed Investment Certificates (GICs), mutual
funds, cash, or other financial instruments. Alternatively, you can establish a
self-directed RRIF to include a combination of individual securities in your
plan, such as stocks, bonds or Treasury bills (in addition to the investments
RRIFs offer investment
flexibility. You can hold the same investments that are eligible for an
RRSP. Shares of Canadian corporations, corporate and government bonds, Canada
Savings Bonds, Treasury bills, mortgages, GICs, term deposits, covered call
options, warrants, rights, and mutual funds that invest in eligible securities
are all qualifying investments. You can also hold a limited percentage of your
RRIF in foreign investments. Just like an RRSP, a RRIF lets you retain control
over your investments, rather than handing over your money to a third party.
The longevity of your RRIF
is simply based on how much money you make in investment return and how much
you take out for income. It does not take a lot of mathematical know how to
figure out that if you earn more money than you withdraw in income, the RRIF
For example, if you invest
in a GIC RRIF at 6% and you take out the minimum (4.76%) at age 69, your RRIF
should grow by 1.24%. At age 72 given the same investment return, the minimum
is now 7.48%. This means your RRIF will deplete in value by 1.48%
What will happen to your
RRIF when you die?
You can leave your
remaining RRIF assets to your heirs upon your death by designating the proper beneficiary
Not all other retirement income options provide for this. Naturally, your
desire to provide an estate for your spouse, beneficiaries or charities may
have an impact on how you set up your RRIF. While this may or may not be an
issue, income and investments should remain the priorities.
RRIFs are flexible
One of the benefits of the
RRIF is the flexibility you have in dictating income. These are some common
types of RRIFs.
- Minimum income RRIF – This RRIF provides the
minimum level of income. Typically, people who choose the minimum income RRIF
are those who do not need the money and want to defer taxable income for as
long as possible. Remember, if this is the case, you can base the RRIF on the
age of your younger spouse.Furthermore, remember the RRIF minimum income is
based on the value of the RRIF on December 31 of the previous year. Sometimes
this can make income planning difficult because you really don’t know what your
income will be until the last minute.
- Capital preservation RRIF – Preserving capital and
paying out a fixed level of income are the goals of this RRIF type. In this
case, you will withdraw your investment returns each year (subject to
minimums). If you are using mutual funds, you might elect a reasonable target
return like 8%, for example, with the hopes and intentions of earning 8% to
maintain the capital.
- Level income RRIF – If you want to provide
income for a specific period of time such as to age 90, this RRIF would be the
right choice. In this instance, you would determine the amount of income you
could derive so that the entire asset would be depleted by the time you reach
90 years of age. You can use age or time frame.Have as many RRIFs as you
wantYou can have as many RRIFs
as you want. You can have one that pays a level income for the next 5 years to
bridge income until government benefits. You can have another that is a capital
preservation RRIF for a more stable long term level of income.Generally, many people
consider consolidating into one RRIF. With a single RRIF, you can easily manage
your investments and you’ll only have to worry about one minimum withdrawal.
Several RRIFs require more time and energy, and you’ll have to arrange to
withdraw at least the minimum from each one.Withholding tax detailsRRIF income is subject to
government withholding tax rates. Just like your employer withholds
taxes and remits them directly to the government, your RRIF administrator is
required to do the same. Minimum income RRIFs are not subject to withholding
tax, but you can request any level of withholding tax desired. In all other
circumstances, there is a 10% withholding rate on withdrawals less than $5000,
20% on withdrawals between $5000 and $15,000 and 30% tax on withdrawals over
$15,000.As you can see, there are a
lot of issues to deal with when it comes to planning your RRIF income. Take the
time to plan wisely.
Enjoy the benefits of filing on time and online
Did you know?
Filing your income tax and benefit return and
paying what you owe on time helps you avoid possible interest and penalty
charges, and ensures that your benefits won't be delayed.
have until midnight on or before April 30, 2015, to file your 2014 income
tax and benefit return.
- If you
or your spouse or common-law partner is self-employed, you have until
midnight on June 15, 2015, to file your return.
balance owing must be paid on or before April 30, 2015—even if your return
is due on June 15, 2015.
What happens if I don't file on time?
When you file your yearly tax return, you are
letting the Canada Revenue Agency (CRA) know your current tax situation.
Without that information, the CRA can't be sure that you are still eligible to
receive certain benefit payments. If you don't file on time, your benefit and
credit payments (for example, the Canada child tax benefit and the goods and
services tax/harmonized sales tax credit) may be interrupted.
Also, if you have a balance owing and you don't
file your return on time, we'll charge you a late-filing penalty. The penalty
is 5% of your 2014 balance owing, plus 1% of your balance owing
for each full month that your return is late, to a maximum of 12 months.
If we charged a late-filing penalty on your return for 2011, 2012, or 2013,
your late-filing penalty for 2014 may be 10% of your 2014 balance owing,
plus 2% of your 2014 balance owing for each full month that your return
is late, to a maximum of 20 months.
In addition to the late-filing penalty, if you
have a balance owing for 2014 you'll be charged compound daily interest
beginning May 1, 2015, on any unpaid amounts owing for 2014.
Even if you can't pay all of your balance owing
right away, you should still file your return on time. You can set-up a
pre-authorized debit agreement using the My Account service, or call us at
1-888-863-8657 to make a payment arrangement. By filing on time, you'll avoid
the late-filing penalty.
CRA online services make filing easier and
getting your refund faster
The CRA's online services are fast, easy, and
secure. You can use them to file your income tax and benefit return, make a
payment, track your refund, receive your notice of assessment, and more. Did
you know that the Government of Canada is switching to direct deposit for
payments that it issues? This includes your tax refund and benefits payments?
Sign up for direct deposit today! For more information, go to www.cra.gc.ca/getready
Scenario 4: Seniors Without TFSAs
By: Walter Harder
Jackie are contemplating retirement. Robert is 65, earns $55,000 from
employment and also receives a $24,000 pension.
Jackie are contemplating retirement. Robert is 65, earns $55,000 from
employment and also receives a $24,000 pension. He has not started to
receive OAS or CPP but is contemplating retirement at age 67. Jackie is
62 and earns $45,000 employment income. Jackie has accumulated $150,000
in her RRSP. Both Robert and Jackie have no TFSA contribution room.
Will Robert and
Jackie be better off in 2015 than in 2014?
derived no benefit from the Family Tax Cuts announced in October 2014.
the tax brackets and personal amounts will result in slight reductions in taxes
payable by both Robert and Jackie unless their income levels increase. Robert’s
contributions to CPP and his EI premiums will increase due to increases in the
maximum pensionable and insurable earnings.
As the couple
has no TFSA contribution room, they have been making the maximum contributions
under the old limit so they will benefit from being able to contribute
more. In the long term, the increased TFSA contribution room may help
Jackie shelter earnings on RRIF minimum withdrawals if they money is not needed
to fund their lifestyle.
The decrease in
minimum RRIF withdrawals may help Jackie to plan her RRIF melt-down strategy
once she reaches age 72.
If this couple
is philanthropically inclined and have real estate such as a cottage that has
increased in value, they could benefit from the new rules allowing the proceeds
from real estate to be donated to charity in order to reduce capital gains tax.
Robert and Jackie are currently working, they are not likely to be benefit from
the new Home Accessibility Tax Credit in the short term. Should either develop
mobility issues, they may be able to modify their home to accommodate their
mobility issues while getting a 15% tax credit for the first $10,000 of their
Scenario 3: Retired Couple with RRIFs
BY: Karen Milner
Patricia retired a few years ago. Brian is 74 and Patricia is 72. The
couple live in Halifax, NS and have RRIF balances of $300,000 and $400,000
Will Brian and
Patricia be better off in 2015 than in 2014?
derived no benefit from the Family Tax Cuts announced in October 2014.
The reduction in
RRIF minimum withdrawals will affect both Brian and Patricia. Under the
old rules, Brian was required to withdraw at least $23,130 from his RRIF.
Under the new rules, he is only required to withdraw $17,010. If he has
already withdrawn more than $17,010, he will be able to redeposit the excess
(to a maximum of $6,120).
Under the old
rules, Patricia was required to withdraw at least $29,920 from her RRIF. Under
the new rules she is only required to withdraw $21,600. If she has
already withdrawn more than $21,600, she can put back up to $8,320.
less, both Brian and Patricia can reduce their tax bill for 2015. In
addition, Patricia’s age amount could be increased by the reduced withdrawal
(depending on how much other income she has).
This couple may
well be able to benefit from the Home Accessibility Tax Credit if they need to
make renovations to their home to make it more accessible. Under this new
program, 15% percent of the first $10,000 renovation costs could be eligible
for a non-refundable tax credit.
If either Brian
or Patricia has foreign assets with a value between $100,000 and $250,000,
they’ll be happy to learn that the sometimes onerous rules for reporting such
assets will be simplified for 2015.
This couple may
also be able to take advantage of the new rules exempting capital gains on
small business corporation shares or real estate investments if a portion of
the proceeds is donated to charity. If they are selling a family farm,
they will be happy to know that the capital gains exemption on farm property
has been increased to $1,000,000, exempting up to $500,000 taxable capital
gains from tax.
The increase in
TFSA contribution limits may allow for more flexibility in retirement as any
minimum RRIF withdrawals that are not needed to fund lifestyle, can still be
sheltered from tax (after the tax is paid on withdrawal).
Scenario 2: A Young Family
By: Walter Harder
Ashley live in Winnipeg. They have two children, ages 3 and 5. They own
their own home.
Ashley live in Winnipeg. They have two children, ages 3 and 5. They
own their own home. Ashley earns $45,000 annually and has an RPP through
work. Matthew operates a small business (proprietorship) and nets $80,000
annually. He has RRSP savings. Child care costs total $12,000
annually. The couple has no TFSA savings.
Will Matthew and
Ashley be better off in 2015 than in 2014?
This couple were
major beneficiaries of the Family Tax Cuts announced in October 2014.
The Family Tax
Cut (income averaging) saved this couple a few hundred dollars in 2014 because
after claiming Child Care Expenses the two spouses are in different tax
brackets. The couple is likely to continue to benefit from the Family Tax
Cut unless Ashley’s income increases so she moves into the second tax bracket.
UCCB of $60 per month per child will increase Ashley’s income in 2015 by
$1,440. Because the UCCB is taxable, Ashley will have to repay 25.8% of
it in increased income taxes. The increased income will also reduce the
couple’s Family Tax Cut.
As a consequence
of the increased UCCB, Matthew’s claim for the two children will be eliminated
for 2015, increasing his tax bill by just under $700.
If the couple
pays more than $14,000 in Child Care Expenses, their claim will increase in
2015 as the upper limit for children under 7 increased from $7,000 to
$8,000. This will decrease Ashley’s taxable income and increase the
Family Tax Cut.
As a young
couple, Matthew and Ashley could benefit greatly from the increase in TFSA
contribution room. At $80,000, Matthew’s first avenue for retirement
savings should be the TFSA, at least until his income increases.
could have benefitted from the increase in the Amount for Children’s Fitness in
2014 – if their expenditures exceeded $500 per child. The 2015 change to
make the credit refundable will have no effect on this couple as this change
really only effects couples who are not taxable.