The end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
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You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
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You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
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You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
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A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward 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.
If you have 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.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
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If you are between the ages of 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 for 2021.
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You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
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Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
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Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
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Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have 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.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses 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. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant 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.
Retirees
Are you 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.
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.
Do you not currently have any pension income? Then, 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.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are 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 are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.
Don’t lose all your hard-earned money to taxes
/in Blog, Tax /by Peace Agencies Financial GroupDon’t lose all your hard-earned money to taxes
Tax planning is an essential part of managing your money – both while living and after your death. You want to maximize the amount of money to your beneficiaries, not the government. We have three tips to help you reduce taxes on your hard-earned money:
Make the most of the lifetime capital gains exemption
Decrease your end-of-life tax bill
Look into Immediate Financing Arrangements
Lifetime capital gains exemption
The good news is that you can save a lot of money on taxes using the lifetime capital gains exemption. The bad news is that you could lose out on some of those savings unless you follow all the appropriate steps. Having a financial team to guide you through these steps is essential. When it comes to selling all or part of your business, your lawyer, accountant, and financial advisor must be all on the same page.
End-of-life tax bill
As with the lifetime capital gains exemption, working with your financial team to ensure your affairs are in order is crucial. Without the proper paperwork, your hard-earned money may not go to the family members, friends, or charities you want to support. Take the time to ensure that your wishes are properly documented and that you have filled out all essential paperwork.
Consider an Immediate Financing Arrangement
An Immediate Financing Arrangement (IFA) lets your business:
Get a life insurance premium on behalf of a shareholder
Create a tax deduction
Transfer assets tax-free from the business to a shareholder’s estate
Also, you can use an IFA to help increase your business’ cash flow by pledging the life insurance policy as collateral for a loan. The loan can be invested into the business or other investments if the company does not need the additional cash flow.
The Takeaway
While this can all seem overwhelming, it is essential to make sure you take the proper steps to protect your business and minimize your tax bill. But you don’t have to do this alone – contact us today for expert advice and guidance.
Self Owned vs. Bank Owned Mortgage Insurance
/in Blog, Life Insurance, mortgage /by Peace Agencies Financial GroupBefore buying insurance from your bank to cover your mortgage, understand the difference between self owned mortgage life insurance and bank owned life insurance. The key differences are ownership, premium, coverage, beneficiaries and portability.
Ownership:
Self: You own and control the policy.
Bank: The bank owns and controls the policy.
Premium:
Self: Your premiums are guaranteed at policy issue and discounts are available based on your health.
Bank: Premiums are not guaranteed and there are no discounts available based on your health.
Coverage:
Self: The coverage that you apply for remains the same.
Bank: The coverage is tied to your mortgage balance therefore it decreases as you pay down your mortgage but the premium stays the same.
Beneficiary:
Self: You choose who your beneficiary is and they can choose how they want to use the insurance benefit.
Bank: The bank is beneficiary and only pays off your mortgage.
Portability:
Self: Your policy stays with you regardless of your lender.
Bank: Your policy is tied to your lender and if you change, you may need to reapply for insurance.
We’ve created an infographic about the difference between personally owned life insurance vs. bank owned life insurance.
Talk to us, we can help.
2022 Federal Budget Highlights
/in Blog, Insurance, Investment /by Peace Agencies Financial GroupFederal Budget 2022 – Highlights
On April 7, 2022, the Federal Government released their 2022 budget. We have broken down the highlights of the financial measures in this budget into the following different sections:
Housing
Alternative minimum tax
Dental care
Small businesses
Tradespeople
Canada Growth Fund
Climate
Bank and insurer taxes
Housing
There were several tax measures related to housing introduced in the budget.
Budget 2022 introduced a new kind of savings account – a Tax-Free First Home Savings Account (FHSA).
These are the key things you need to know about the new FHSAs:
You must be at least 18 years of age and a resident of Canada to open an account. You must also not currently own a home or have owned one in the previous four calendar years.
You can only open and use an FHSA once, and you must close it within a year after your first withdrawal.
Contributions are tax-deductible, and income earned in an FHSA will not be either while it is in the account or when you withdraw it.
There is a lifetime contribution limit of $40,00, with an annual contribution limit of $8,000. You can’t carry contribution room forward.
If you don’t use the funds in your FHSA within 15 years of opening it, you can transfer them to an RRSP or RRIF tax-free. Transfers to an RRSP do not impact your RRSP contribution room.
Two existing tax credits were increased, and a new one was introduced:
The First-Time Home Buyers’ Tax Credit amount was increased from $5000 to $10,000, giving up to $1,500 in direct support to home buyers. This tax credit applies to all homes purchased on or after January 1, 2022.
The annual expense limit for the Home Accessibility Tax Credit has been increased to $20,000 for 2022 and subsequent tax years.
A new tax credit, the Multigenerational Home Renovation Tax Credit, was introduced, which will start in 2023. This tax credit is a 15% refundable credit for eligible expenses up to $50,000 (maximum tax credit is $7,500) for constructing a secondary suite for a senior or an adult with a disability to live with a qualifying relative.
Budget 2022 proposes new rules, effective January 1, 2023, that anyone who sells a residential property they have held for less than 12 months would be subject to full taxation on their profits as business income. However, there will be some exemptions to these rules due to life events such as a death, disability, the birth of a child, a new job, or a divorce.
Budget 2022 also announces restrictions that would help ensure that Canadians, instead of foreign investors, own housing. A two-year ban will be introduced on non-residents buying residential property, with some exceptions, such as individuals who have work permits and are living in Canada.
Alternative Minimum Tax
In Canada, the top federal tax rate is 33% and starts at an income of $221,708. However, many high-income filers end up paying less tax than this due to tax deductions and tax credits.
The goal of the Alternative Minimum Tax (AMT), which has been around since 1986, is to ensure high-income Canadians are paying their fair share of taxes. However, it has not been substantially updated since it was introduced. In Budget 2022, the government indicated they would be investigating changes to the AMT, which will likely be disclosed in the fall 2022 economic update.
Dental Care
For many Canadians without private coverage, going to the dentist is too expensive. Budget 2022 commits $5.3 billion to provide dental care for Canadians with family incomes of less than $90,000 annually. Coverage will start for children under 12 this year and expand to children under 18, seniors and those living with a disability in 2023, with the program will be fully implemented by 2025.
Small Businesses
Small businesses currently have a 9% tax rate on the first $500,000 of taxable income (compared to the corporate tax rate of 15%). However, after a small business’ capital employed in Canada reaches $15 million, it is no longer eligible for the 9% tax rate.
Budget 2022 proposes gradually phasing out the small business tax rate so that businesses are not discouraged from expanding. The new cut-off for the lower tax rate will be $50 million.
Budget 2022 also includes a proposal to create an Employee Ownership Trust. This would be a new, dedicated trust under the Income Tax Act to support employee ownership.
Tradespeople
Budget 2022 introduces the Labour Mobility Deduction. This would allow eligible tradespersons and apprentices to deduct up to $4,000 a year in eligible travel and temporary relocation expenses.
Budget 2022 also commits to providing $84.2 million over four years to double funding for the Union Training and Innovation Program, which would help 3,500 apprentices from underrepresented groups each year.
Canada Growth Fund
Budget 2022 introduces a new Canada Growth Fund, with the goals of both diversifying our economy and helping achieve our climate goals.
The Canada Growth Fund aims to attract considerable private sector investment, support the restructuring of vital supply chains, and bolster our exports. The Canada Growth Fund will also provide backing to reduce our emissions and invest in the growth of low-carbon industries.
Climate
Budget 2022 continues to confirm the government’s commitment to fighting climate change. It commits $1.7 billion over five years to extend the Incentives for Zero-Emission Vehicles Program until March 2025 and also provides funding to create a national network of electric vehicle charging stations.
Budget 2022 also commits $250 million over four years to support the development of clean electricity, including inter-provincial electricity transmission projects and Small Modular Reactors.
Bank And Insurer Taxes
Budget 2022 introduced a new financial measure called the Canada Recovery Dividend. Banks and insurers will have to pay a one-time, 15% tax on 2021 taxable income above $1 billion. This tax will be payable over five years.
Budget 2022 also proposes increasing the tax rate on income above $100 million for banks and insurers to 16.5% (currently 15% for other corporations).
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!
2021 Income Tax Year Tips
/in Blog, Tax /by Peace Agencies Financial GroupTax Tips You Need To Know Before Filing Your 2021 Taxes
This year’s tax deadline is April 30, 2022. We’ve got a list of tips to help you save on your taxes!
Claiming home office expenses
You can claim up to $500 under the “flat rate” method if you worked at home due to COVID-19. To claim more, you must use the detailed method to claim home office expenses.
Employer-provided benefits
If your employer reimburses you for certain costs (such as commuting costs, parking, and home office equipment) due to COVID-19, the CRA will generally not consider this a taxable benefit.
Repaying Covid-19 support payments
If you repaid COVID-19 benefits, you can deduct the amount on your tax return either for the year you received the benefit or the year you repaid it, or you can split the deduction between both years.
Climate Action incentive can no longer be claimed
As of 2021, this amount can’t be claimed as a refundable credit; instead, you’ll receive quarterly payments via the benefits system.
Disability tax credit (DTC)
If you or a family member are DTC claimants, then you should review the updated criteria for the tax credit in regards to mental functions, life-sustaining therapy and calculating therapy time.
Eligible educator school supply tax credit
This tax credit has been increased to 25 percent for eligible supplies (such as books and games) to a maximum of $1,000.
Tax deduction on interest payments
You can claim a tax deduction for the interest you’ve paid on any money you’ve borrowed to invest. However, you can only do this if you use the money to earn investment income (for example, a rental property).
The digital subscriptions tax credit
You can claim up to $500 as a tax credit if you have a digital subscription to a qualifying Canadian news outlet.
Self-employed? Be sure to set aside enough for personal income tax!
If you’re self-employed, be sure you put aside enough money (we recommend 25% of your income) to pay your tax bill when the time comes. You’re taxed only on your net income (total income minus expenses).
You need to plan ahead for tax changes if you want to retire abroad
Planning to retire abroad? If so, you need to be aware of the tax implications and plan accordingly. If you sell your house and move, you may be considered a “non-resident” and be subject to capital gains taxes on non-registered investments (even if you have not sold them) or have your pension subjected to a withholding tax.
You can stop making CPP contributions if you’re over 65 but plan to keep working
If you’re 65 and already collecting Canada Pension Plan (CPP) benefits but also still working, you may be able to stop making CPP contributions. To do so, you need to fill in the form CPT30.
Need help?
Not sure if you qualify for a credit or deduction? Give us a call – we’re here to save you money on your taxes!
Permanent versus Term Life Insurance – What are the Differences?
/in Blog, Life Insurance /by Peace Agencies Financial GroupPermanent versus Term Life Insurance – What are the Differences?
You know you need life insurance – but you’re not sure which kind is best for you. We can help you with that decision.
There are two main kinds of life insurance:
Permanent, which lasts for your entire life.
Term, which is only good for a set amount of time.
No matter which type of life insurance you buy – permanent or term – you can rest easy knowing you’ve provided financial protection for your family.
Permanent life insurance
Permanent life insurance is good for your entire life unless you choose to cancel it. It’s an excellent choice to give you peace of mind that you’ll always be covered, even if you develop major health issues later in life.
There are also benefits to having permanent life insurance beyond guaranteed lifelong coverage:
You can use the policy to build up a cash value – making it a good choice for low-risk investing.
You may be able to use your permanent life insurance policy as collateral for a loan, making it a good choice for business owners.
The main drawback to permanent life insurance policies is that the premiums are often more expensive than term life insurance premiums. If, however, you’re thinking long-term and can afford the premiums, permanent life insurance is a great way to ensure you’re always protected and can have some guaranteed money for your estate.
Term life insurance
Term life insurance is either valid for a set amount of time (such as five or ten years) or until you reach a set age – for example, 60. You should generally be able to renew your life insurance at the end of each term, but your premiums may go up.
Term life insurance premiums are cheaper than permanent life insurance premiums – at least, you are younger and healthier (as the risk of you dying is lower). Your premiums will increase as you age or develop health issues.
You can’t use term life insurance as collateral for a loan or use the policy to build up a cash value. There are lots of benefits to term life insurance, though – it’s a good choice for you if you want low premiums, easy-to-understand insurance, and only need it for a set amount of time – such as while you have a mortgage or young children.
We can help you decide between permanent and term life insurance
If you’re not sure what kind of life insurance is best for you, we can help. We’re happy to talk to you to get more information about your insurance needs. We can then discuss what each type of insurance will cost you and which type of insurance we feel is best for you.
Give us a call today!
Easy Exit: Business Succession in a Nutshell
/in Blog, Business Owners /by Peace Agencies Financial GroupGetting into the world of business is a meticulous task, but so is getting out of it
Whether you’ve just hit the ground running on your business or if you’ve been at it for a long time, there is no better time to plan your exit strategy than now. Although the process may seem taxing, we’ve answered a few questions you may have about planning your business succession strategy.
1. Who do I talk to about this?
Deciding on how to go about the transition requires careful planning, and you need to consult no less than people who are well equipped to help you out. First, talk to your key advisors such as bankers and financial partners. You could also use some advice from your accountant and lawyers. If your company has an advisory board, better consult them as well. You may also hire a specialist or a consultant, depending on how you choose to go about your business succession plan.
2. Who should I choose as a successor?
There are several ways to go about this, and your decision will ultimately be your personal choice. You may pass on your business to a family member or to your top executives or managers. You may also choose to sell it to an outsider. Whichever path you choose, you can also decide on how much you want to be involved in the business after you pass it on. That is, if you want to be involved at all.
3. When should I inform my successor about my plans?
While a surprise inheritance may be heartwarming, it’s not the same with inheriting a business. Getting a successor ready—whether it’s a family member or someone from your company—requires careful planning and training. As soon as you’ve chosen a successor, better get started on getting them ready for the big shoes they’re about to fill. This includes helping them equip themselves with the necessary skills, knowledge, and qualifications necessary to run your business.
4. How do I plan the transition itself?
The transition will be twofold—transferring ownership and handing over the business itself. As far as transferring ownership is concerned, you need to consider legal and financial details. These include valuation, financing and taxation. You also need to consider if you wish to keep your current legal structure (corporation, sole prop, partnership, etc.) or if you (or your successor) would like to change it. You also need to plan how to prepare various stakeholders in the business for the transition. How will you prepare your customers, clients, and employees? What would be their level of involvement? Make sure that you put different strategies in place in order to ensure transparency and consistency in communicating changes in your business, especially something as drastic as succession.
5. Now that I have a business succession plan ready, can I go back to business as usual?
Not really. Your business and your customers’ needs may change over time. This means that you need to keep reviewing and adjusting your plan as your business also evolves.
2022 Alberta Budget Highlights
/in 2022, Blog /by Peace Agencies Financial GroupAlberta 2022 Budget Highlights
On February 24, 2022, the Alberta Minister of Finance announced Alberta’s 2022 budget. This article highlights the most important things you need to know.
Increasing The Capacity Of The Health Care System
Budget 2022 commits to adding a total of $1.8 billion to the Alberta health care budget by 2024-2025. This money will be spent to help put in place new mental health and addiction support, attract new physicians to remote areas, strengthen Emergency Medical Services, and address pandemic-related health costs and surgical backlogs.
Budget 2022 also commits to investing over $750 million in health care capital. This money will be used to create new inpatient beds for cancer patients, increase surgical capacity, upgrade the Red Deer Regional Hospital Centre, and provide additional treatment spaces for mental health.
Supporting Albertans To Get Back To Work
Budget 2022 is committed to helping Albertans get back to work. Budget 2022 commits $171 million to this goal over three years. This money will be used to help increase enrollment spaces in areas that have skill shortages, including technology, finance, energy, engineering, health, and aviation. Budget 2022 also commits to providing support for increasing training opportunities for vets and commercial drivers, apprenticeship programs, and training opportunities for Indigenous Peoples.
Another goal of Budget 2022 is to support Albertans seeking employment or looking to advance their careers. Budget 2022 commits over $100 million to expand skills development and training opportunities, address barriers to employment, and provide financial support options to low-income students in high-demand programs.
Committing To The Fiscal Plan
Budget 2022 is Alberta’s second balanced budget in over a decade. Total revenue for the province for 2022-2023 is estimated to be $62.6 billion in 2022-23, and total overall expenses in 2022-23 will be $62.1 billion.
No Changes To Corporate or Personal Tax Rates
Budget 2022 does not include any changes to the province’s corporate tax rates or personal tax rates.
We can help!
We can help you assess the impact of this year’s budget on your finances or business. Give us a call today!
TFSA versus RRSP – What you need to know to make the most of them in 2022
/in 2022, Blog, RRSP, Tax Free Savings Account /by Peace Agencies Financial GroupTFSA versus RRSP – What you need to know to make the most of them in 2022
TFSAs and RRSPs can be significant savings vehicles. To help you understand their differences, we have put together this article to compare:
TFSA versus RRSP – Differences in deposits
TFSA versus RRSP – Differences in withdrawals
TFSA versus RRSP – Difference in deposits
There are four main areas to focus on when comparing differences in deposits for 2022:
Contribution Room
Carry Forward
Contributions and Tax Deductibility
Tax Treatment of Growth
How much contribution room do I have?
If you have never opened a TFSA before, you can contribute up to $81,500 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:
For RRSPs, the contribution limit is always 18% of your previous year’s pre-tax earnings to a maximum of $29,210. For example, if you earned $60,000 in 2021 then your contribution limit for 2022 would be $10,800 (18% x $60,000). If you earned $200,000, your contribution limit would be capped at the maximum of $29,210.
How much contribution room can I carry forward?
If you choose not to contribute to your TFSA at all one year or do not contribute the maximum amount in a year, you can indefinitely carry forward your unused contribution room. The only restrictions on this are that you must be a Canadian resident, older than 18, and have a valid social insurance number. In addition, if you make a withdrawal, the amount you withdrew is added to your annual contribution room for the following calendar year.
For an RRSP, you can carry forward your unused contribution room until the age of 71. When you turn 71, you must convert your RRSP into an RRIF. If you make a withdrawal from your RRSP, you do not open up any additional contribution room.
Contributions and Tax Deductibility
Your TFSA contributions are not tax-deductible and are made with after-tax dollars. Your RRSP contributions are tax-deductible and are made with pre-tax dollars.
Tax Treatment of Growth
One of the reasons it is essential to make both RRSP and TFSA contributions is that investment value growth is treated differently.
A TFSA is more suitable for short-term objectives like saving for a house down payment or a vacation because the investment value growth is tax-free. In addition, when you make a withdrawal from your TFSA, you will not have to pay income tax on the amount withdrawn.
The growth in an RRSP is tax-deferred, meaning you will not pay any taxes on your RRSP gains until you withdraw money from your future RRIF account; the account you convert your RRSP into at age 71. As a result, RRSPs are better suited for long-term objectives, like retirement. In addition, since you will have a lower income in retirement than when you are working, you will be in a lower tax bracket and not pay much tax on your RRIF income.
TFSA versus RRSP – Differences in withdrawals
There are four main areas to focus on when comparing differences in withdrawal for 2022:
Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room
Conversion Requirements
For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA. However, if you have an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st of 2022.
Tax Treatment Of Withdrawals
One of the most attractive things about a TFSA is that all your withdrawals are tax-free! This ability to withdraw funds tax-free is why TFSAs are advantageous for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.
With an RRSP, if you make a withdrawal before converting it to a RRIF, it will be taxed as income except in two cases:
The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.
How will my government benefits be impacted?
If you are withdrawing from your TFSA or RRSP, it is essential to know how your withdrawals can impact any benefits you receive from the government.
Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.
RRSP withdrawals are considered taxable income and can affect the following:
Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.
How will a withdrawal impact my contribution room?
If you make a withdrawal from your TFSA, then the amount you withdrew will be added on top of your annual contribution room for the following calendar year. However, if you withdraw money from your RRSP, you do not open up additional contribution room.
The Takeaway
RRSPs and TFSAs can both be great savings vehicles. With this in mind, understanding the differences between these two types of tax-advantaged accounts can help you better plan for future purchases and your eventual retirement.
2022 Financial Calendar
/in 2022, Blog, Financial Planning /by Peace Agencies Financial Group2022 Financial Calendar
Welcome to our 2022 financial calendar! This “at a glance” document lists important dates, including when government benefits are distributed and tax filing deadlines.
Be sure to bookmark this or add the dates listed to your personal calendar so you’re always in the loop!
Use our calendar to make sure you keep on track with your financial goals and avoid missing any critical tax or investment deadlines.
If you’re looking for help with your taxes, tax packages will be available in February 2022, so reach out to your accountant or us to book an appointment and get started on your taxes!
Important Dates
Dates to know:
January 1 is when the contribution room for your TFSA opens again. The maximum contribution for 2022 is $6,000.
The government will issue GST/HST credit payments on January 5, April 5, July 5, and October 5.
Canada Child Benefit payments (CCB) will be issued on the following dates: January 20, February 18, March 18, April 20, May 20, June 20, July 20, August 19, September 20, October 20, November 18, and December 13.
The government will issue CPP and OAS payments on the following dates: January 27, February 24, March 29, April 27, May 27, June 28, July 27, August 29, September 27, October 27, November 28, and December 21.
The final date for your RRSP contributions to be eligible for the 2021 tax year is March 1, 2022.
Bank of Canada’s interest rate announcements will be on January 26, March 2, April 13, June 1, July 13, September 7, October 26, and December 7.
May 2, 2022, is the last day to file personal income taxes, and tax payments are also due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2021.
May 3 to June 30 – The filing deadline for final tax returns if death occurred between November 1 and December 31. The due date for the final return is six months after the date of death.
The tax deadline for all self-employment returns is June 15, 2022. Any balance owing, however, is due May 2, 2022.
The deadline for final RESP, RDSP, and TFSA contributions is December 31.
December 31 is also the deadline for 2022 charitable contributions.
December 31 is also the deadline for individuals who turned 71 in 2022 to finish contributing to their RRSPs and convert them into RRIFs.
2021 Personal Year-End Tax Tips
/in Blog, Individuals /by Peace Agencies Financial GroupThe end of 2021 is quickly approaching – which means it is time to get your finances in order, so you are ready when it comes time to file your taxes.
In this article, we cover four types of 2021 personal tax tips:
Individuals
Investment Considerations
Families
Retirees
Individuals
It is essential to make sure you are not paying taxes unnecessarily.
These are the main COVID-19 benefits for individuals:
You can apply for the Canada Recovery Benefit if you are not eligible for EI and can not work due to COVID-19 or have had your income reduced due to COVID-19. This benefit ended as of October 23, 2021, but you can still claim the last eligible period until December 22, 2021.
You can apply for the Canada Recovery Sickness Benefit if you are sick or need to self-isolate due to COVID-19. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend it to next May.
You can apply for the Canada Recovery Caregiving Benefit if you can not work because you need to supervise a child or other dependent family member because they are ill with COVID-19 or their usual school or other facility is closed. This benefit is scheduled to end on November 21, 2021, but legislation has been proposed to extend this benefit to next May.
A new Canada Worker Lockdown Benefit provides $300 a week if you can not work due to a government-imposed lockdown (and are not receiving EI). This benefit is proposed, and legislation for this benefit has not been passed.
You must apply for these benefits no later than 60 days after the end of the claim period. You will receive a T4A from the CRA and must report any money received from these benefits as income on your 2021 tax return.
All Canada Recovery Benefits (CRB) are subject to a 10% withholding tax. If you earned over $38,000 in net income in 2021, you might be required to reimburse the government some or all of the CRB at tax time. You can use tax deductions such as RRSP contributions to avoid either additional tax on these recovery benefits or reduced benefits.
If you have to repay any COVID-19 benefits, you can deduct the repayment amount from your income in the year you received the benefit.
For 2020, the CRA introduced a simplified process for claiming a deduction for home office expenses for employees working from home due to COVID-19. An employee can either claim using a new temporary flat rate method or use the more traditional method for claiming home office expenses. We assume a similar approach will be allowed for 2021, so be sure to track all your home office expenses.
Do you expect to have any capital losses? If you have capital losses, you must first deduct them against any capital gains you had in the current year. After that, you can carry back any excess capital losses up to three years or forward indefinitely. Trades can take up to two days to settle, so be sure to sell any investments you want to claim a capital loss on by December 29 at the latest.
You can deduct any fees you pay to manage or administer your non‑registered investments. As well, you can usually deduct interest charges paid on borrowed money if you used the money to earn income from non‑registered investments or a business. If you have non-deductible interest, like a mortgage or car loan, talk to your tax advisor to see if you can restructure your investments to make the interest on these loans tax‑deductible.
If you have eligible medical expenses that were not paid for by either a provincial or private plan, you can claim these expenses against your taxes. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and dependent children in a 12-month period. However, it is generally better for the spouse with a lower income to claim the expense because the credit is reduced by a percentage of net income. If the lower-income spouse does not have enough tax payable to offset the medical expense tax credit, it may be beneficial to move the expenses to the higher-income spouse.
Tax credits for donations are two-tiered, with a larger credit being available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward 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.
If you have 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.
If you care for a dependent relative with a mental or physical impairment, you may be able to claim a non-refundable tax credit.
Will your personal tax rate be lower in 2022 than it will be for 2021? If so and have the option, you may wish to defer receiving income to 2022. And if your tax rate will be higher in 2022 than for 2021, try to accelerate income and receive it before the end of 2021.
There are a few options available to you when it comes to tax tips if you are enrolled in school:
If you are between the ages of 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.
Investment Considerations
Depending on your circumstances, there are up to three different ways you can set aside money in registered accounts to save for the future:
Contribute to your Tax Free Savings Account (TFSA). You can contribute up to a maximum of $6000 for 2021. You can carry forward unused contribution room indefinitely. For instance, if you have never contributed to your TFSA, the cumulative total from 2009 to 2021 is $75,500.
Contribute to your RRSP or a spousal RRSP. Remember, you can deduct contributions made in the year or within the first sixty days of the following calendar year from your 2021 income. You also have the option of carrying forward deductions.
Suppose you have an RDSP open for yourself or an eligible family member. You may be able to have 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.
If you need extra money this year because your income was unusually low, you may want to consider making an RRSP withdrawal before the end of the year to boost your income. This is generally only a good idea if you are in the lowest tax bracket. Be aware that you will permanently lose that contribution room if you withdraw money from an RRSP. However, if you are concerned about whether making an RRSP withdrawal is a good strategy for you, we are happy to answer any questions you may have.
Families
If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct these expenses. Various childcare expenses 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. Some provinces offer additional childcare tax credits on top of the federal ones.
A Registered Education Savings Plan (RESP) can be a great way to save for a child’s future education. However, the Canadian Education Savings Grant 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.
Retirees
Are you 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.
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.
Do you not currently have any pension income? Then, 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.
If you have reached the age of 60, you may be considering applying for the Canada Pension Plan. However, keep in mind that the monthly amount you will receive will be lower if you apply at 60 versus a later age. Keep in mind, you do not have to have retired to apply for CPP.
If you are 65 or older, ensure that you are 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 are running into OAS “clawback” issues, consider ways to split or reduce other sources of income to avoid this clawback.
Need some additional guidance?
We hope you have enjoyed all of our tax tips. If you have questions or want help to make sure you use all the tax deductions you are eligible for, reach out to us and set up a time to talk.