Demystifying MER’s (Management Expense Ratio)

/in , /by

brandableContent

Investing in a fund requires a good understanding of its associated costs, including the Management Expense Ratio (MER). In this article and infographic, we’ll break down the different components of the MER.

Understanding the Management Expense Ratio

The Management Expense Ratio is a percentage of the total assets in an investment fund that covers the cost of managing and operating the fund. It’s essential to remember that the MER is deducted from your investment returns. Therefore, a higher MER means lower net returns for you.

For instance, if a fund’s expenses added up to 2% of its assets, its MER would be 2%. It’s essential to keep in mind that your returns are reported after the MER is deducted. Therefore, a higher MER can lead to lower net returns for you. Understanding a fund’s MER is important in making informed investment decisions and ensuring you’re getting the most value for your money.

Components of the Management Expense Ratio

There are several components of the MER, including:

Investment Management Fee

The investment management fee is the cost of professional investment management, fund administration, and support services. Investment fund managers and analysts conduct research and analysis of current and potential holdings for the fund, providing investors access to their expertise, education, and experience.

Trailing Commission

The trailing commission compensates the investment dealer and financial advisor for selling the fund and providing ongoing financial advice and service to the investor. The commission also covers trade confirmation, account openings and closing, issuance of statements and communications, and regulatory compliance activities.

Operating Expenses

Operating expenses are essential for the smooth operation of the investment fund, and they ensure that investors receive the information they need to make informed investment decisions. These expenses cover day-to-day costs, including record-keeping fees, accounting and fund valuation costs, custody fees, audit and legal fees, reports and prospectuses, and filing fees.

Taxes

Investment funds are required to pay taxes on their management and administration fees. In addition, they must also include GST/HST in their fees.

It’s essential to comprehend the different factors that comprise the Management Expense Ratio to make informed investment decisions and maximize your investment’s value.

To obtain further details, please do not hesitate to contact us.

First Home Savings Account (FHSA): What You Need to Know

/in , /by

The First Home Savings Account (FHSA) is a savings plan designed for first-time home buyers in Canada, which allows them to save up to $40,000 tax-free. Contributions to an FHSA are tax-deductible, similar to Registered Retirement Savings Plans (RRSP). Additionally, income and gains earned inside the account and withdrawals are tax-free, like a Tax-Free Savings Account (TFSA).

In this article and accompanying infographic, we will provide you with the necessary information you need to know about FHSA, including eligibility requirements, contributions and deductions, income and gains, qualifying investments, withdrawals, and transfers.

Eligibility Requirements

To be able to open an FHSA, you need to meet all the following eligibility requirements:

  1. Residency: You must be an individual who is a resident of Canada.

  2. Age: You must be at least 18 and not reach 72 in the current year.

  3. First-time Home Buyer: You must be a first-time home buyer, which means that neither you nor your spouse had owned a qualifying home that was your principal residence at any point during the calendar year or the preceding four calendar years before the account was opened.

Contributions and Deductions

There are limits to the amount you can contribute to your FHSA.

  • The annual contribution limit is $8,000.

  • The lifetime contribution limit is $40,000.

If you do not contribute the full amount each year, the contribution room carries forward to the following year. However, carry-forward amounts only start accumulating after you open an FHSA for the first time, and they do not automatically begin when you turn 18.

Any excess contributions are subject to a penalty of 1% per month.

brandableContent

Tax Deductions

By claiming contributions made to FHSA accounts as a deduction against all taxable income sources, the amount of taxable income for the year can be reduced, resulting in a decrease in the amount of taxes payable.

Suppose you choose not to claim the FHSA deduction in the year. In that case, you can carry forward the unused contribution amounts indefinitely and claim them as a deduction later, like RRSP deductions.

Qualifying Investments

Qualifying investments for an FHSA are like those allowed in RRSPs and TFSAs, including mutual funds, segregated funds, ETFs, stocks, bonds, and GICs.

Incomes and Gains

The income and capital gains earned in an FHSA are not included in your annual income for tax purposes and therefore are not deductible. This means that the investment can continue to grow and compound within the FHSA tax-free like a TFSA.

Qualifying Withdrawals

Withdrawals from an FHSA are subject to specific rules and conditions. Qualifying withdrawals made to purchase a home are tax-free but must meet specific criteria:

  • The person making the withdrawal must be a first-time home buyer and a Canadian resident.

  • They must also intend to use the property as their primary residence within one year of purchasing or building it.

  • The home being purchased must be in Canada, and a written agreement to buy or build the home must be in place before October 1st of the year following the withdrawal.

It is not possible to restore FHSA contribution limits by making withdrawals or transfers.

Transfers

Unused funds in an FHSA account following a qualifying withdrawal can be transferred tax-free to an RRSP or Registered Retirement Income Fund (RRIF) until the end of the following year from the year of the first withdrawal. Transfers do not affect the available RRSP contribution room, but the transferred funds will be taxable when withdrawn from the account.

It’s important to remember that there are limitations on how long you can keep your FHSA account. You must close your FHSA after you’ve held it for 15 years or by the end of the year in which you turn 71, whichever comes first.

If you’re considering opening an FHSA or saving for a home, we can help; contact us.

Tax Tips You Need To Know Before Filing Your 2022 Taxes

/in , , , /by
brandableContent

Tax Tips You Need To Know Before Filing Your 2022 Taxes

This year’s tax deadline is May 1, 2023, as April 30 falls on a Sunday this year. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. In this article, we’ll provide you with tips to help you maximize your tax refund and ensure you’re taking advantage of all the available tax benefits.

Canada Workers Benefit

The Canada Workers Benefit (CWB) is a refundable tax credit designed to help low-income working families and individuals. The credit is made up of two parts:

  • The basic amount

  • A disability supplement (if you qualify).

To determine whether you qualify for the tax credit, you’ll need to consider your net income and where you live. The CRA website provides full details about the net income qualification amounts.

The maximum amounts you can qualify for are as follows:

  • The maximum basic amount is $1,428 for single individuals and $2,461 for families.

  • The maximum amount for the disability supplement is $737 for single individuals and $737 for families.

Claiming Home Office Expenses Due To COVID-19

You can still claim home office expenses if you’re not self-employed but worked from home due to the pandemic. You can:

  • Claim the temporary flat amount if you worked more than 50% of the time from home for at least four consecutive weeks in 2022. You can claim $2 for each day worked from home, up to a maximum of $500. No paperwork or forms are required!

  • Use the detailed method and claim the actual amounts. In this case, you’ll need supporting documentation, plus a completed and signed T2200S form from your employer. You can claim various applicable expenses, including home Internet access fees.

The Tax Deduction for Zero-Emissions Vehicles

A capital cost allowance (CCA) is a tax deduction that helps cover the cost of an asset’s depreciation over time. The CRA created two new capital cost allowances, which apply to zero-emission vehicles bought after March 18, 2019.

They are as follows:

  • Class 54. This class is for motor and passenger vehicles, excluding taxis or vehicles used for lease or rent. It has a CCA rate of 30%. For 2022, capital costs will be deductible up to $55,000, plus sales tax. This amount will be reassessed every year.

  • Class 55 is for leased and rented vehicles or taxis. The CCA rate is 40%.

Return Of Fuel Charge Proceeds To Farmers Tax Credit

You may be eligible for this tax credit if you are either self-employed or part of a farming partnership in Alberta, Manitoba, Ontario and Saskatchewan.

This tax credit aims to help farmers offset the high cost of the carbon tax.

Eligible Educator School Supply Tax Credit

You can claim up to $1,000 of eligible supplies and expenses if you qualify for the educator school supply tax credit.

The tax credit rate for the 2022 tax year is 25%, with a maximum credit of $250.

Need help?

Do you qualify for a credit or deduction? Call us – we’re here to save you money on your taxes!

Federal Budget 2023 Highlights

/in , , , , , , /by

On March 28, 2023, the Federal Government released their 2032 budget. This article highlights the following financial measures:

  • New transfer options associated with Bill C-208 for intergenerational transfer.

  • New rules for employee ownership trusts.

  • Changes to how the Alternative Minimum Tax is calculated.

  • Improvements to Registered Education Savings Plans.

  • Expanding access to Registered Disability Savings Plans.

  • Grocery rebate.

  • Deduction for tradespeople tool expenses.

  • Automatic tax filing.

  • New Canadian Dental Care Plan.

Amendments To Bill C-208 Intergenerational Transfer Introduces Two New Transfer Options

Budget 2023 introduces two transfer options associated with the intergenerational transfer of a business:

  1. An immediate intergenerational business transfer (three-year test) based on arm’s length sales terms.

  2. A gradual intergenerational business transfer (five-to-ten-year test) based on estate freeze characteristics.

For the three-year test, the parent must transfer both legal and factual control of the business, including an immediate transfer of a majority of voting shares and the balance, within 36 months. The parent must also transfer a majority of the common growth shares within the same time frame. Additionally, the parent must transfer management of the business to their child within a reasonable time, with a 36-month safe harbour. The child or children must retain legal control for 36 months following the share transfer, and at least one child must remain actively involved in the business during this period.

For the gradual transfer option, the conditions are similar to the immediate transfer, but with a few differences. The parent must transfer legal control, including an immediate transfer of a majority of voting shares and the balance, within 36 months. They must also transfer a majority of the common growth shares and the balance of common growth shares within the same time frame. As well, within 10 years of the initial sale, parents must reduce the economic value of their debt and equity interests in the business to 50% of the value of their interest in a farm or fishing corporation at the initial sale time, or 30% of the value of their interest in a small business corporation at the initial sale time. The child or children must retain legal control for the greater of 60 months or until the business transfer is completed, and at least one child must remain actively involved in the business during this period.

The extended intergenerational transfer now applies to children, grandchildren, stepchildren, children-in-law, nieces and nephews and grandnieces and grandnephews.

The changes apply to transactions that occur on or after January 1, 2024. If the election is made, the capital gain reserve period is extended to ten years, and the limitation period for assessing a return is extended to three years for an immediate transfer and ten years for a gradual business transfer.

New Rules for Employee Ownership Trusts

The employees of a business can use an employee ownership trust (EOT) to purchase the business without having to pay the owner directly to acquire shares. Business owners can use an EOT as part of their succession planning.

Budget 2023 introduces new rules for using ownership trusts (EOTs) as follows:

  • Extending the five-year capital gains reserve to ten years for qualifying business transfers to an EOT.

  • A new exception to the current shareholder loan rule which extends the repayment period from one to fifteen years for amounts loaned to the EOT from a qualifying business to purchase shares in a qualifying business transfer.

  • Exempts EOTs from the 21-year deemed disposition rule that applies to some trusts. This means that shares can be held indefinitely for the benefit of employees.

Clean Energy Credits

The upcoming Budget 2023 is set to introduce a series of measures aimed at encouraging the adoption of clean energy. These measures include several business tax incentives such as:

  1. Clean Electricity Investment Tax Credit: This is a refundable tax credit of 15% for investments in equipment and activities for generating electricity and transmitting it between provinces. The credit will be available to new and refurbished projects starting from March 28, 2023, and will end in 2034.

  2. Clean Technology Manufacturing Credit: This tax credit is worth 30% of the cost of investments in new machinery and equipment for processing or manufacturing clean technologies and critical minerals. It applies to property acquired and put into use after January 1, 2024. The credit will be phased out starting in 2032 and fully eliminated in 2034.

  3. Clean Hydrogen Investment Tax Credit: It offers a refundable tax credit ranging from 15% to 40% of eligible project expenses that produce clean hydrogen, as well as a 15% tax credit for certain equipment.

  4. Clean Technology Investment Tax Credit: This tax credit will be expanded to include geothermal systems that qualify for capital cost allowance under Classes 43.1 and 43.2. The phase-out will begin in 2034, and it will not be available after that date.

  5. Carbon Capture, Utilization and Storage Investment Tax Credit (CCUS): The budget broadens and adjusts specific criteria for the refundable Investment Tax Credit (ITC) for CCUS. Qualified equipment now includes dual-purpose machinery that generates heat and/or power or utilizes water for CCUS and an additional process, as long as it meets all other requirements for the credit. The expense of such equipment is eligible on a proportionate basis, based on the anticipated energy or material balance supporting the CCUS process during the project’s initial 20 years.

  6. Reduced rates for zero-emission technology manufacturers: The reduced tax rates of 4.5% and 7.5% for zero-emission technology manufacturers will be extended for three years until 2034, with phase-out starting in 2032. The eligibility will expand to include the manufacturing of nuclear energy equipment and processing and recycling of nuclear fuels and heavy water for taxation years starting after 2023.

  7. Lithium from brines: Allow producers of lithium from brines to issue flow-through shares and expand the Critical Mineral Exploration Tax Credit’s eligibility to include lithium from brines.

Changes To How Alternative Minimum Tax Is Calculated

Budget 2023 proposed several changes to calculating the Alternative Minimum Tax (AMT), including the following:

  • The capital gains inclusion rate will increase from 80 percent to 100 percent, while capital losses and allowable business investment losses will apply at a rate of 50 percent.

  • The inclusion rate for employee stock option benefits will be altered to 100 percent, and for capital gains resulting from the donation of publicly listed securities, it will be modified to 30 percent.

  • The 30 percent inclusion rate will also apply to employee stock option benefits if any deduction is available because underlying shares are also publicly listed securities that were donated.

  • Certain deductions and expenses will now be limited to 50 percent, and only 50 percent of non-refundable credits (excluding a special foreign tax credit) will be permitted to reduce the AMT.

  • The AMT tax rate will increase from 15 percent to 20.5 percent.

  • The AMT exemption will rise from the present allowable deduction of $40,000 for individuals to an amount indexed to the fourth tax bracket, expected to be $173,000 in 2024.

  • The AMT carryforward period will remain unaltered at seven years.

Improving Registered Education Savings Plans (RESPs)

Budget 2023 introduces the following changes to RESPs:

  • As of March 28, 2023, beneficiaries may withdraw Educational Assistance Payments (EAPs) up to $8,000 (from $5,000) for full-time programs and $4,000 (from $2,500) for part-time programs.

  • Individuals who withdrew EAPs before March 28, 2023, may be able to withdraw an additional EAP amount, subject to the new limits and the plan terms.

  • Divorced or separated parents can now open joint RESPs for one or more of their children.

Expanding Access to Registered Disability Savings Plans

Qualifying family members, such as a parent, a spouse, or a common-law partner, can open an RDSP and be the plan holder for an adult with mental disabilities whose ability to enter into an RDSP contract is in doubt and who does not have a legal representative.

Budget 2023 announces the government’s intention to extend the provision that allows this until December 31, 2026. To further increase access to RDSPs, the government also intends to expand the provision to include adult siblings of an RDSP beneficiary.

Grocery Rebate

The Budget 2023 will implement the Grocery Rebate, which will be a one-time payment managed through the Goods and Services Tax Credit (GSTC) system. The maximum amount that can be claimed under the Grocery Rebate is:

  • $153 for each adult

  • $81 for each child

  • $81 for a single supplement.

The implementation of the Grocery Rebate will be gradual and will follow the same income thresholds as the present GSTC regulations.

Deduction for Tradespeople’s Tool Expenses

Budget 2023 increases the employment deduction for tradespeople’s tools to $1,000 from $500. This is effective for 2023 and subsequent taxation years.

Automatic Tax Filing

The Canada Revenue Agency (CRA) will pilot a new automatic filing service for Canadians who currently do not file their taxes to help them receive certain benefits to which they are entitled.

The CRA also plans to expand taxpayer eligibility for the File My Return service, which allows taxpayers to file their tax returns by telephone.

Canadian Dental Care Plan

In Budget 2023, the federal government is investing in dental care for Canadians with the new Canadian Dental Care Plan. The plan will provide dental coverage for uninsured Canadians with annual family incomes of less than $90,000, with no co-pays for those under $70,000.

The budget allows the CRA to share taxpayer information for the Canadian Dental Care Plan with an official of Employment and Social Development Canada or Health Canada solely to administer or enforce the plan.

Wondering How This May Impact You?

If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!

Alberta 2023 Budget Highlights

/in , , , , , , , /by

On February 28, 2023, the Alberta Minister of Finance announced Alberta’s 2023 budget. We’ve highlighted the most important things you need to know about this budget.

No Changes To Corporate or Personal Tax Rates

Budget 2023 does not include any changes to the province’s corporate tax rates or personal tax rates.

Tax Credits

The budget confirms that the government will introduce a new Agri-Processing Investment Tax Credit. This provides a 12% non-refundable tax credit on eligible capital investments of at least $10 million made on or after February 7, 2023, and unused credits can be carried forward for ten years.

The maximum allowable expenses for the Adoption Expenses Tax Credit have been increased to $18,210.

Lowered Education Property Tax

The budget decreases the mill rates used to calculate the education property tax as follows:

• Residential or farmland — $2.56 (down from $2.65) per $1,000 of equalized assessment

• Non-residential — $3.76 (down from $3.90) per $1,000 of equalized assessment.

Investments In Education, Tourism and Infrastructure

Budget 2023 makes the following investments in education, tourism and infrastructure:

  • Post-secondary education will be more affordable for students as Budget 2023 introduces reduced loan rates (to prime from the current prime plus one percent and extended repayment grace periods (now extended from six months to one year). Tuition increases will be capped at two percent as of Fall 2024.

  • $10 million over two years is committed to promoting rural tourism.

  • An $800 million investment will be made to both reduce greenhouse gas emissions and support green technology.

  • Alberta’s road and bridge network, a crucial element of its expanding economy, will receive funding of $2.3 billion over a three-year period for vital projects and programs aimed at its enhancement and expansion.

We can help!

Need help determining the impact of this year’s budget on your finances or business? Give us a call today!

2022 Year End Tax Tips and Strategies for Business Owners

/in , , , , , /by

Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.

Salary/Dividend Mix

As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.

When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room. 

The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends. 

In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:

  • Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.

  • Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.

  • Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.

  • Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.

No matter what strategy you take to distribute money from your business, keep in mind the following:

  • Your marginal tax rate as the owner-manager.

  • The corporation’s tax rate.

  • Health and payroll taxes

  • How much RRSP contribution room do you have?

  • What you’ll have to pay in CPP contributions.

  • Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).

Compensation

Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.

These are the main things to consider when determining how you want to handle compensation:

  • Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.

  • Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount? 

  • Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?

  • Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.

  • Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement. 

Passive Investments

One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12 to 21 percent, depending on the province or territory. 

With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.

The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.

These are some of the ways you can make sure you preserve your access to the SBD:

  1. Defer the sale of portfolio investments as necessary.

  2. Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold are taxable, but investment income earned on bonds is fully taxable.

  3. Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total. 

  4. Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.

Depreciable Assets

Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).

Here’s how to make the most of tax planning with depreciable assets:

  • Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.

  • Purchase equipment such as zero-emissions vehicles and clean energy equipment eligible for a 100 percent tax write-off.

  • Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2022 taxation year.

Qualified Small Business Corporation (QSBC) Share Status

Ensure your corporate shares are eligible to get you the $913,630 (for 2022) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.

Suppose you sell QSBC shares scheduled to close in late December 2022 to January 2023. In that case, you may want to consider deferring the sale to access a higher LCGE of $971,190 for 2023 and therefore defer the tax payable on any gain arising from the sale.

Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you. 

Donations

Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.

For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:

  • Donate Securities

  • Give a direct cash gift to a registered charity

  • Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.

  • Set up a private foundation to solely represent your interests.

We can help walk you through the tax implications of these types of charitable donations.

Get year-end tax planning help from someone you can trust!

We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.

Contact Us

2022 Personal Year-End Tax Tips

/in , , /by

The end of 2022 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!

In this article, we’ve covered four different major types of 2022 personal tax tips:

  • Investment Considerations

  • Individuals

  • Families

  • Retirees

  • Students

Investment Considerations

Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6000 for 2022. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $81,500 (including 2022).

Registered Retirement Savings Plan (RRSP)- Contribute to your RRSP or a spousal RRSP. Remember that you can deduct contributions made within the first sixty days of the following calendar year from your 2022 income. You also have the option of carrying forward deductions. Consider the best mix of investments for your RRSP: hold growth investments outside the plan (to benefit from lower tax rates on capital gains and eligible dividends), and hold interest-generating investments inside. We can help if you need advice on how to make the most of your RRSP.

Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely.

Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.

Individuals

The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.

COVID-19 federal benefits – If you repay any COVID-19 benefit amounts before 2023, you can deduct from your income the repayment amount in the year in which the benefit amount was received instead of the year it was repaid. (You can also split the deduction between the two years.)

Income Timing – If your marginal personal tax rate is lower in 2023 than in 2022, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2023 than in 2022, accelerate.

Worked at home in 2022?-You may be able to deduct an income tax deduction for home office expenses. The Canada Revenue Agency (CRA) has extended the availability of the simplified method—claiming a flat rate of $2 per day working at home due to the COVID-19 pandemic—to 2022. Consider what’s more advantageous for you to claim: the simplified or traditional method.

Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage! Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.

Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.

Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.

Families

Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.

Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.

Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.

Estate planning arrangements – Review your estate plan annually to ensure it reflects the current tax rules. Review your will to ensure that it will form a valid will. Consider strategies for minimizing probate fees.

Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.

Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.

Retirees

Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices!

Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits! Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.

Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.

Old Age Security – If you’re 65 or older, ensure you’re enrolled for Old Age Security (OAS) benefits. Retroactive OAS payments are only available for up to 11 months plus the month you apply for your OAS benefits. If you’re running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this.

Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.

Students

Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.

Canada training credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.

Need some additional guidance?

Reach out to us if you have any questions. We’re here to help.