Tax Cuts at your Fingertips - Reach Out and Claim Yours
Beat the tax with these year-end tax tips for tax year 2009
Tax-planning should be a year round activity but even if you’ve been otherwise occupied this,year, you still have time to save money on your 2009 taxes by using strategies like these. Be deadline savvy: File your tax return and make tax payments on time to avoid penalties and interest. Payments that qualify for tax credits and deductions should be made by December 31. Deduct to save: Take full advantage of all tax deductions including the most important – your Registered Retirement Savings Plan (RRSP) deduction. Be sure to fill up all your RRSP
contribution room.
Give yourself all the credit: Make full use of tax credits to reduce your tax bill by:
• Pooling medical expenses on the tax return of the lower earning spouse.
• Pooling charitable donations or carrying them forward for up to five years to surpass the
$200 threshold that increases your credit.
• Using the spousal credit for the higher-earning spouse.
• Transferring the age, disability, tuition and/or education credits to a spouse or supporting
relative when not used by a dependent.
• Don’t forget the first time homebuyer, home renovations and moving expenses credits. Split to save: Income-split by sharing pension income with a spouse, through a spousal RRSP or by paying a salary to (eligible) family members. Be RRSP savvy: If you’re turning 71 this year, you must wind up your RRSP and need to
decide whether to take the cash (poor choice) or transfer the funds to investments held within a Registered Retirement Income Fund (RRIF) or annuity (much better choices). If you have earned income, you can continue making contributions to a spousal plan until your spouse reaches age 71.
Save tax-free: Make up to a $5,000 contribution to a Tax-Free Savings Account (TFSA). The contribution isn’t tax deductible but money and interest inside your TFSA is tax-free and so are withdrawals that you can make at any time for any purpose. Amounts withdrawn are added to your TFSA contribution room for the following year.
Make down investments pay off: Plan to sell money-losing investments by the December 31 settlement date, which creates capital losses than can offset capital gains. Buy now to save: If you’re self-employed and claiming the capital cost allowance (CCA) on
depreciable assets, buy them before year end to speed up tax write-offs.
Move to save: If you’re moving to a province with a lower tax rate, do it before December 31 and you’ll pay the lower rate for the full year. If you’re moving to a province with a higher tax rate, try to delay until 2010.
And here’s the best tax-saving tip of all: Talk to your financial advisor/tax advisor to be certain you make the most of these and other tax-reduction strategies that are available to you.
This article is presented for general information only, and not a solicitation to buy or sell any financial products. Consult your financial advisor for advice regarding your financial or tax situation.
Tax Strategy: Spousal strategies – income-splitting can still work!
Spousal Tax Strategies – income-splitting can still work !
The new Tax-Free Savings Account (TFSA) and other federal tax changes may have you wondering about the value of one of the most basic tax-saving strategies for couples: “Income-splitting through a spousal Registered Retirement Savings Plan (RRSP)”. A spousal RRSP can still be a worthwhile way to reduce your family tax bite in certain situations. Here’s how income-splitting can work for you: It provides a means of reducing a family’s overall tax bill by shifting income from a higher earner to the lower-income earner so that family income is taxed at a lower rate. It may allow a couple to avoid a claw-back of Old Age Security (OAS) benefits by keeping each partner’s income below the prescribed threshold. Recent tax changes now allow Canadian retirees to split up to half of their eligible pension income (i.e. income that qualifies for the federal Pension Income Tax Credit) with their spouses or common-law partners. In addition, income-splitting with ‘non-spousal’ RRSPs is also permitted, but only after the contributor reaches age 65.
Here’s when a spousal RRSP can be a valuable addition to your personal financial plan: If you and your spouse intend to retire before age 65, the higher-earning spouse can contribute to a spousal RRSP but stop making those contributions three years before retirement. After retirement, the lower-earning spouse makes withdrawals from the spousal RRSP. Because no contributions had been made to the spousal RRSP during the previous three calendar years, none of the spousal RRSP income paid to the lower earning spouse is attributed to the higher earning spouse for taxation purposes. If a lower-earning spouse exits the workforce to take a parental leave or an educational leave, he or she can receive a payment from a spousal RRSP. In a year of little or no additional income, that person will pay little or no taxes. If one of you continues to work after age 71 and generates “earned income” for RRSP purposes, that person can no longer contribute to their RRSP but can contribute to a spousal RRSP until the end of the year that the spouse attains age 71. If a person dies and has unused RRSP contribution room, no contribution can be made to the deceased’s RRSP. However, a final RRSP contribution that is made to a new or existing spousal RRSP within 60 days following the end of the year of death is deductible on the deceased’s final tax return.
Is a spousal RRSP a worthwhile income-splitting strategy for you?
Ask your professional advisor about income-splitting and other tax planning and retirement savings strategies that can benefit you and your family.
This article is for general information only, not a solicitation to buy or sell any financial products. Consult your professional financial advisor for advice regarding your specific financial circumstances.
For more information on Canada's Economic Action Plan visit: actionplan.gc.ca
Financial Planning is a general term used by most professional advisors – but not all financial plans are created equal … and they shouldn’t be. Your financial plan should be a perfect fit for your life as it is today, easily and quickly adaptable to the constant changes life throws at you, and always focused on achieving your longer term life goals. That’s a big – and important – deal.
So, the first question you must ask yourself is, Do I need a financial plan? The simple answer is yes – if you have an income, a family (or the hopes of one), dreams of a comfortable retirement, and any of the dozens of other financially-rooted reasons that are unique to you.
The next question is, What are the elements of a sound financial plan? There are two answers to that question: the general and the specific. In general, every financial plan should include: investment planning, cash flow planning, education planning, estate planning, insurance planning, retirement planning, and income tax planning.
The key to a successful financial plan is making sure that each of those elements is made specific to you and your needs – and to do that, a competent professional advisor will take you through this six step planning process:
1. Goal setting – to determine and prioritize your goals and concerns.
2. Data gathering – assembling the relevant financial information to understand your current financial situation.
3. Financial analysis – using your current and projected financial situation to identify and answer questions like: "How much tax must I pay?" How can my taxes be reduced?" Will I have enough income to cover my expenses during retirement?" "How can I better meet my income needs?" "How can I protect my family and income if I should become disabled or die unexpectedly?"
4. Plan formulation and recommendations – discussing, reviewing and deciding on various alternatives and solutions for achieving your financial goals and improving your overall financial life.
5. Plan implementation – providing you with a written report summarizing the steps you need to take to make your plan work.
6. Monitoring and plan review – financial planning is not a one-time event. You should review your plan at least annually or when major life events occur.
Comprehensive financial planning is complex and necessary. To be sure you get exactly the right one for your situation, it’s a good idea to put a professional advisor on your financial team – an advisor with the qualifications, tools and track record you can count on to develop a personalized financial plan that will the job for you – today and tomorrow.
This column presents general information only and is not a solicitation to buy or sell any investments. Contact a financial advisor for specific advice about your circumstances.
Making the most out of your retirement income Are you maximizing your retirement income? What are the sources of your retirement?
Living the retirement lifestyle you want means making the most of your retirement income over a longer and healthier span of years. And that definitely demands that you establish effective tax planning and tax management strategies aimed at maximizing your retirement income by reducing/minimizing your taxes and potential Old Age Security (OAS) ‘clawback’ pressures. When your net income reaches a certain threshold, then the OAS clawback kicks in. For 2009, the threshold starts at $66,335.
Here are three strategies to consider in your tax planning:
Income-splitting
This basically means structuring your investments and sources of income to lower your family’s total tax liability by shifting income from the hands of the spouse (or common law partner) in a higher tax bracket to the spouse in a lower tax bracket. You can do this in two ways:
Pension income-splitting. Allocate up to 50 per cent of your ‘eligible pension income’ (which includes income that qualifies for the federal Pension Income Credit and Registered Retirement Income Fund (RRIF) income for those over age 65) to your partner for taxation purposes.
Share Canada Pension Plan, Quebec Pension Plan (CPP/QPP) benefits. Applying to share your benefits with your partner can result in significant tax savings.
Tax Free Savings Account (TFSA's) for those 71 or older
At the end of your 71st year, you will be required by the government to wrap up your RRSPs and convert the proceeds, usually to a RRIF. A certain amount of RRIF income must be taken every year – but if you don’t need all of it to live on, consider putting the extra money into a TFSA where it can grow tax-free.
Monthly income portfolio
This mutual fund option is more flexible and tax-advantaged than other non-registered options. For example, a Guaranteed Investment Certificate (GIC) locks in money for a period of time in return for a fixed, guaranteed rate of return. That can lock you out of potentially higher future returns as well as creating an immediate tax bill on redemption.
On the other hand, a Monthly Income Portfolio (MIP's) is designed to provide maximum investment returns along with a monthly income. A portion of the monthly income is treated as a return on capital – a tax-deferral strategy that can provide you with increased after-tax monthly income.
There are plenty of Monthly Income Portfolio funds to choose from, depending on your investment preferences and tolerance for risk. There are also many other solid strategies for maximizing your retirement income by managing taxes. Talk them over with your professional advisor. This portfolio is commonly referred to as a T-series fund or tax efficient investments since a siginificant portion of the fund's cash distributions are return of capital (ROC).
This is presented for general information only and not a solicitation to buy or sell any investment product.. Consult your financial advisor for advice regarding your specific financial situation.
Did you a get a Tax Refund? What to do with your Tax Refund Money
Did You Get a Tax Refund this Year- What can you do with your tax refund money? April 2009
It’s great to get a tax refund, isn’t it? Tempted to buy that latest technical toy or a vacation? Think again. So, what are you going to do with it? In past years, you might have been sorely tempted to spend it on a guilty pleasure but maybe not in this more economically year. Remember this year is the year of the "pink slips", take a second look and see what you can do with your tax refund money.
However – ‘if’ you want to improve your personal economy in the longer run, here are a few options for making the best use of your tax refund.
· Accelerate your RRSP: Get a head start on your next year’s Registered Retirement Savings Plan (RRSP) contribution. You’ll benefit from almost an extra year of potential long-term RRSP tax-deferred growth, plus a tax deduction against your taxes next year.
· Check out new investment opportunities: If your RRSP is topped up, use your refund to:
• Open a Tax-Free Savings Account – you’ll enjoy tax-free earnings and growth and you can make tax-free withdrawals at any time for any use you can imagine.
• Add to your non-registered investments. The best tax-reducing strategy is to hold stocks and equity mutual funds outside an RRSP. Any gains on these investments are taxed at the more favourable capital gains inclusion rate and Canadian dividends received from these types of investments qualify for the dividend tax credit.
· Build an education fund: Fund your children’s future education costs with a Registered Education Savings Plan (RESP). RESP contributions are not tax deductible, but their growth is tax deferred and they qualify for Canada Education Savings Grants* of 20 per cent or more of your contribution.
· Pay down your most costly debt. The interest rate on credit card debt can range from 15 to 29 per cent per annum – so be sure to reduce or eliminate that debt first.
· Pay down your long-term debt: Taken care of your high-cost debt? Then pay down nondeductible debt like your mortgage. Every pre-payment will reduce your repayment schedule and could save plenty in interest payments.
· Zero next year’s refund: Why give the government an interest-free loan of your money for a year and have to wait for a refund cheque? Apply to have less tax withheld from your pay cheque and you’ll have a little more money for your own use every pay period. Apply to lower your withholding tax using File Form T1213, available from your local CRA office or from the CRA Website, www.cra-arc.gc.ca. [Québec clients also have to file the Québec form TP- 1016-V.]
It’s great to get a tax refund – but it’s even better to have a comprehensive tax and financial plan.
This article is presented for general information only, and not a solicitation to buy or sell any investment products.
A professional financial advisor can help develop the right plan for you.
Consult your financial advisor for your specific financial situation.
Tax Free Savings Account (TFSA) and Estate Planning
Tax Free Savings Account (TFSA) and Estate Planning
Death of the TFSA holder - Who can be named as the successor-holder in a TFSA contract? A TFSA holder can only name a spouse or common-law partner as the successor holder in the TFSA contract. On the death of the TFSA holder, the spouse becomes the new holder of the TFSA investment, maintaining the tax exempt status of the TFSA. This will not affect the TFSA contribution room of the spouse or common law partner. Whether or not a beneficiary can be named in a TFSA contract depends on provincial legislation. As of the date of this writing, Ontario had not passed a legislation regarding the naming of a beneficiary in a TFSA contract. Some of the provinces have already revised their legislation to allow for the designation of a beneficiary. Some TFSA application forms may not be updated until later in 2009, until the provincial legislation have been enacted. If you are not able to designate a beneficiary when opening a TFSA account, check back with your financial institution within a couple of months.
What are the tax rules upon death of the TFSA holder?
Where no successor holder is named for the TFSA, the proceeds of the account will become part of the estate of the deceased. If a surviving spouse/common-law partner receives proceeds from the TFSA, the proceeds can be used to make an exempt contribution to the survivor's TFSA, and not affect the contribution room of the survivor as long as:
It is done before the end of the first calendar year following the holder's death (rollover period);
And, it is designated as an exempt contribution in the survivor's income tax return for the year the contribution is made.
Where there is no spouse or common-law partner named as the successor holder, the TFSA will not lose its tax-exempt status:
Until the the earlier of the time it ceases to exist (completely paid out to beneficiaries);
Or, end of first calendar year following the holder's death.
Any payments to beneficiaries, including during this exempt period, will be taxable to the beneficiaries, to the extent that the payment includes income or capital gains earned after the death of the holder. Take note that the income earned within the TFSA after the death of the TFSA holder becomes subject to tax.
TFSA Scenario - Death of TFSA holder
TFSA holder dies with TFSA valued at $90,000. By the time the assets are distributed to the beneficiaries, the value has grown to $92,000. $2,000 will be taxable income to the beneficiaries. The $2000 income was earned after the death of TFSA's holder.
TFSA and Probate
Assets with named beneficiaries such as life insurance policies or RRSPs are excluded in determining the value of an estate for purposes of probate. It is likely that a TFSA with a named successor holder would also be excluded from probate. This is a very good reason for anyone with a spouse/common-law partner to ensure that they name that person as a successor holder when setting up the TFSA.
This article is presented for general information only. Consult your financial advisor for advice regarding your specific financial situation.
Tax Free Savings Account (TFSA) or RRSP, what is right for you?
Tax Free Savings Account (TFSA) or RRSP, what is right for you?
Most investors have short-term goals, which may include a major purchase, vacation or establishing an emergency fund. There are several options available for your personal Tax Free Savings Account (TFSA) depending on the “term” of short-term and the your overall plan. Explore how a TFSA can help you save for these goals faster and tax free. You can put $5000 in a variety of investment options.
Your financial advisor can help you incorporate your short-term, long-term and tax planning needs into you financial plan.
Watch your savings grow tax-free throughout your lifetime.
To analyze which savings option is right for you, there are top five differences between RRSPs and TFSAs:
1. An RRSP is a savings plan mostly aimed at saving for retirement. this savings vehicle is a tax deferral savings plan. ATFSA is for all your other savings goals. Your goal can be to save for a car, improvements for your home, a vacation, for education, and can include so many other savings goals you may have.
2. RRSP is tax deductible, you don't pay tax on the money you save in an RRSP until you take it out (fully taxable). With a TFSA, it is not tax deductible, this comes from your after tax money. You don't get to deduct your TFSA contribution from the income you report on your tax return.
3. Whenever you take money out of an RRSP, the amount is added to your income and taxed at your current tax rate. With a TFSA, there's no tax on any money you take out – not even the money you made investing, including capital gains. You put your money in, then you get your money and growth out --tax free, it is that simple....
4. You have to close/collapse an RRSP after age 71. There is no time limit for contributing to a TFSA, contributions allowed past age 71.
5. With both plans, TFSA and RRSP, you can name your spouse or common-law partner as a beneficiary. However, only the spouse or common law partner can be the successor to the TFSA plan. The money will roll over to them upon your death. But with an RRSP, after your spouse or partner dies, there will be taxes due on any money left in the account. So if your children inherited the money, they would have to pay that tax. A TFSA is different. Your children would get the whole amount tax-free. That's because you've already paid the tax on the money you contributed to your TFSA.
It's also important to note that the maximum allowable RRSP contribution may be significantly greater than the amount that may be deposited in a TFSA. RRSP limits are based on the lower of 18% of earned income or the limit for the year. By comparison, Canadians may contribute up to $5000 to a TFSA in 2009, with future increases in the yearly limit indexed to inflation. This limit is the same for everyone, regardless of income.
The easy access helps make TFSAs a good supplement to RRSPs for people who want to continue saving for retirement but have maximized their RRSP contributions or have reached the age of 71 -- the age limit for RRSP contributions. There is no maximum age for contributing to a TFSA.
Now, let us try to answer the question RRSP or TFSA, which option is right for you?
The answer depends on…
Your marginal tax rate (will your marginal tax rate be lower at retirement?)
Other RRSP opportunities
Will it be enough for you?
Flexibility versus discipline
Your primary savings goal(s)
You also can’t forget the other opportunities of RRSPs such as:
•Pension income credit, •Income splitting, •pension income splitting with your partner once you’re 65, or •Using spousal RRSPs.
If your primary goal is saving for retirement, you need to ask yourself if the $5,000 annual contribution limit that the TFSA offers will provide you with enough savings for the retirement lifestyle you desire.
TFSAs give you the flexibility to withdraw funds anytime you wish. If your primary goal is to save for your retirement, analyze your financial strategy and ask yourself if you have the discipline to put money into a TFSA and not touch it again until retirement. RRSPs have that self-imposed discipline (it is a tax deferral savings strategy – no one wants to take a tax hit if they don’t have to. A TFSA doesn’t offer you that structure/and discipline.
Or, consider that if you have other goals to save for, short term or long term, you may not want to use your entire TFSA contribution room for retirement savings.
There are other variables to consider in deciding which option is right for you. Analyse your personal financial situation, and with the advice of your financial advisor, decide on an option that is right for your financial circumstances.
This article is presented for general information only. Consult your financial advisor for advice regarding your specific financial situation.
