Tax Planning Tips for End of 2018

Now that we are nearing year end, it’s a good time to review your finances. 2018 saw a number of major changes to tax legislation come in force and more will apply in 2019, therefore you should consider available opportunities and planning strategies prior to year-end.

Below, we have listed some of the key areas to consider and provided you with some useful tips to make sure that you cover all of the essentials.

Key Tax Deadlines for 2018 Savings

December 31, 2018:

  • Medical expenses

  • Fees for union and professional memberships

  • Charitable gifts

  • Investment counsel fees, interest and other expenses relating to investments

  • Student loan interest payments

  • Political contributions

  • Deductible legal fees

  • Some payments for child and spousal support

  • If you reached the age of 71 in 2018, contributions to your RRSP

January 30, 2019

  • Interest on intra-family loans

  • Interest you must pay on employer loans, to reduce your taxable benefit

February 14, 2019

  • Expenses relating to personal car reimbursement to your employer

March 1, 2019

  • Contributions to provincial labour-sponsored venture capital corporations

  • Deductible contributions to a personal or spousal RRSP

Family Tax Issues
  • Check your eligibility to the Canada Child Benefit
    In order to receive the Canada Child Benefit in 2019/20, you need to file your tax returns for 2018 because the benefit is calculated using the family income from the previous year. Eligibility depends on set criteria such as your family’s income and the number and age of your children and you may qualify for full or partial amount.

  • Consider family income splitting
    The CRA offers a low interest rate on loans and it therefore makes sense to consider setting up an income splitting loan arrangements with members of your family, whereby you can potentially lock in the family loan at a low interest rate of 2% and subsequently invest the borrowed monies into a higher return investment and benefit from the lower tax status of your family member. Don’t forget to adhere to the new Tax on Split Income rules.

  • Have you sold your main residence this year?
    If so, your 2018 personal tax return must include information regarding the sale or you may lose any “principal residence” exemptions on the capital gains from the sale and thus make the sale taxable.

  • If you’re moving, think carefully about your moving date
    If you are moving to a new province, it’s worth noting that your residence at December 31, 2018 is likely to be the one that your taxes are due to for the whole of the 2018 year. Therefore, if your move is to a province with higher taxes, putting your move off until 2019 may therefore make sense, and vice versa if you are moving to a lower tax province.

Managing Your Investments
  • Use up your TFSA contribution room
    If you are able, it’s worth contributing the full $5,500 to your TFSA for 2018. You can also contribute more (up to $57,500) if you are 27 or older and haven’t made any previous TFSA contributions.

  • Check if you have investments in a corporation
    The new passive investment income rules apply to tax years from 2018 and you therefore need to plan ahead if the rules affect you. They state that the small business deduction is reduced for companies which are affected with between $50,000 and $150,000 of investment income, therefore the small business deduction has been stopped completely for corporations which earn passive investment income of more than $150,000.

  • Think about selling any investments with unrealized capital losses
    It might be worth doing this before year-end in order to apply the loss against any net capital gains achieved during the last three years. Any late trades should ideally be completed on or prior to December 21, 2018 and subsequently confirmed with your broker. Conversely, if you have investments with unrealized capital gains which are not able to be offset with capital losses, it may be worth selling them after 2018 in order to be taxed on the income the following year.

Estate and Retirement Planning
  • Make the most of your RRSP
    The deadline for making contributions to your RRSP for the year 2018 is March 1, 2019. There are three things that affect how much you may contribution towards your RRSP, as follows:

    • 18% of your previous year’s earned income

    • Up to a maximum of $26,230 for 2018 and $26,500 for 2019

    • Your pension adjustment

Remember that deducting your RRSP contribution reduces your after-tax cost of making said contribution.

  • Check when your RRSP is due to end
    You should wind-up your RRSP if you reached the age of 71 during 2018 and your final contributions should be made by December 31, 2018.

Other Considerations
  • Make your personal tax instalments
    If you pay your final 2018 personal tax instalment by December 15, 2018, you won’t pay interest or penalty charges. Similarly, if you are behind on these instalments, you should try to make “catch-up” payments by that date. You can also offset part or all of the non-deductible interest that you would have been assessed if you make early or additional instalment payments.

  • Remember the deadline for making a taxpayer-relief request
    The deadline is December 31, 2018 for making a tax-payer relief request related to the 2008 tax year.

  • Consider how to minimize the taxable benefit for your company car
    The taxable benefit applied to company cars is comprised of two parts – a stand-by charge and an operating-cost benefit. If you drive a company car, it’s worth considering how to potentially minimize both of these elements. The taxable benefit for operating costs is $0.26 per km of personal use, therefore you should make sure that you reimburse your employer where relevant, by the deadline of February 14, 2019.

Contact us if you have any questions, we can help.

Alberta Budget 2018

The 2018 budget for Alberta focuses on the diversification of its post-recession economy, with the aim of creating more stability and less vulnerability to future fluctuations in oil prices. Here are some of the highlights:

Corporate

Interactive Digital Media Tax Credit

Alberta intends to bring in a new Interactive Digital Media Tax Credit with a maximum funding of $20 million per year, which aims to offer eligible companies with a benefit of 25% of eligible labour costs. This benefit relates to costs incurred after April 1, 2018 and is aiming to better support the interactive digital media sector in the province.

Alberta Investor Tax Credit

The 2018 budget extends the existing Alberta Investor Tax Credit until 2012-22. The existing program offers a 30% tax credit to both individuals and corporations who commit to making equity investments in eligible Alberta businesses, such as those involved in research, development, digital animation and various others.

Diversity & Inclusion Credit

Relating to the Interactive Digital Media Tax Credit and Alberta Investor Tax Credit, the budget notes a 5% diversity and inclusion credit enhancement which could be claimed if the company offers employment to an individual from an under-represented group.

Capital Investment Tax Credit

The budget announces that the Capital Investment Tax Credit, a 10% non-refundable tax credit of up to $5 million for a corporation’s eligible capital expenditures on manufacturing, processing and tourism infrastructure, will also be extended until 2021-22.

Personal

Alberta Child Benefit

The 2018 budget details increases to these benefits for families with 1, 2, 3 and 4 plus children, as well as increasing the phase-out threshold for family net income from $41,786 to $42,287.

Alberta Family Employment Tax Credit

Increases have also been announced in the budget to offer more benefits for working families who have income from employment of more than $2,760 per year. The phase-out threshold has been extended from a family net income of $41,786 to $42,287, as well as increases to the benefit amounts for each family size.

Cannabis Tax

The budget covers the agreement made by Alberta to adhere to a structured tax framework with the Canadian government for a period of two years after the legalization of cannabis for recreational purposes. Specifically, either $1 per gram or 10% of the producer price (whichever is greater) will be collected and the province will receive 75% of this tax room, both to be collected by the federal government. In addition, an additional tax of a maximum of 10% of the retail price may also be collected by the province.

Education Property Tax

A freeze has been set on education property tax collection, but the current rates have increased as follows:

·      From $2.48 to $2.56 per $1,000 or equalized assessment for residential/farmland property.

From $3.64 to £3.76 for non-residential property

Tax Lines to look out for

It’s that time of year again, when many of us sit down to complete our income tax return and hope that we have done enough preparation to ensure a smooth and speedy process. Unfortunately, there are a number of complexities that can cause us problems – here are a few of the most common issues experienced by individuals when submitting their tax returns:

Medical Expenses

Expenses relating to medical expenses such as prescriptions, dentures and many more can be claimed for a non-refundable tax credit. You should also be aware that you can claim for yourself, your spouse or common law partner and any dependent children under the age of 18. You can also claim for certain other individuals whom you can clearly evidence are dependent on you (and the list of such individuals has recently been widened and can include grandparents, uncles, aunts, nieces and nephews).

Charitable Donations

You can claim tax credits for qualifying charitable donations that you made in 2017, though they are subject to an annual limit at 75% of your net income. You may also be eligible for a provisional donation tax credit. To receive such credits, you must supply a charitable donation receipt as evidence of your donation.

What’s more, there is a new formula for calculating the federal tax credit, depending on the value of donations. This is as follows:

1.    15% of the first $200 of donations

2.    33% of donations equal to the lesser of the amount of taxable income over $202,800 or the amount of donations over $200

3.    29% of total donations not included in the two stages above.

Public Transit Pass

Although this credit ended in the 2017 federal budget, it can still be claimed for the time period of January 1 – June 30, 2017. There are a range of eligible passes, including passes allowing unlimited travel within Canada, short term passes allowing unlimited travel for five days of which at least 20 days’ worth are purchased during a 28 day period and electronic payment cards.

Interest Expense and carrying charges

Interest on money borrowed to earn business or investment income is generally deductible, however interest expenses incurred on money borrowed to generate a capital gain is not tax deductible.

Carry forward information

Take note of the notice of assessment from your previous year’s tax return as it will contain important information that will apply to the submission of your current year’s return, such as your RRSP contribution limit and any carry-forward amounts.

Remember that you may be required to submit receipts alongside your electronic return at a later date, as requested by the CRA.

Child care expenses

Child care expenses include payments made to caregivers, nursery schools, day care centres and camps and other similar institutions. The deduction is usually best claimed by the lower earning spouse.

The deduction is the lesser of the following three:

·      the total qualifying child care expenses which have been incurred

·      $8,000 for each child under the age of 7, as well as $5,000 for each child between 6 and 16 and $11,000 for each child for whom the taxpayer has claimed the disability tax credit.

·      two thirds of the income earned by the individual making the claim.

If you owe money when your income tax return is complete, the only way to delay payment is to delay the filing until the April 30th deadline. Alternatively, if CRA owes you money, then file as early as possible. 

2018 Federal Budget Highlights for Families

Several key changes relating to personal financial arrangements are covered in the Canadian government’s 2018 federal budget, which could affect the finances of you and your family. Below are some of the most significant changes to be aware of:

Parental Leave

The government is creating a new five-week “use-it-or-lose-it” incentive for new fathers to take parental leave. This would increase the EI parental leave to 40 weeks (maximum) when the second parent agrees to take at least 5 weeks off. Effective June 2019, couples who opt for extended parental leave of 18 months, the second parent can take up to 8 additional weeks, at 33% of their income.

Gender Equality

The government aims to reduce the gender wage gap by 2.7% for public servants and 2.6% in the federal private sector. The aim is to ensure that men and women receive the same pay for equal work. They have also announced increased funding for female entrepreneurs.

Trusts

Effective for 2021 tax filings, the government will require reporting for certain trusts to provide information to provide information on identities of all trustees, beneficiaries, settlors of the trust and each person that has the ability to exert control over the trust.

Registered Disability Savings Plan holders

The budget proposes to extend to 2023 the current temporary measure whereby a family member such as a spouse or parent can hold an RDSP plan on behalf of an adult with reduced capacity.

If you would like more information, please don’t hesitate to contact us.

RRSP Deadline is March 1, 2018. How much tax can you save?

RRSP Deadline: March 1, 2018

The deadline for contributing to your Registered Retirement Savings Plan (RRSP) for the 2017 tax filing year is March 1, 2018. You generally have 60 days within the new calendar year to make RRSP contributions that can be applied to lowering your taxes for the previous year.

If you want to see how much tax you can save, enter your details below!

Do you REALLY need life insurance?

You most likely do, but the more important question is, ‘What kind?’ Whether you’re a young professional starting out, a devoted parent or a successful CEO, securing a life insurance policy is probably one of the most important decisions you will have to make in your adult life. Most people would agree that having financial safety nets in place is a good way to make sure that your loved ones will be taken care of when you pass away. Insurance can also help support your financial obligations and even take care of your estate liabilities. The tricky part, however, is figuring out what kind of life insurance best suits your goals and needs. This quick guide will help you decide what life insurance policy is best for you, depending on who needs to benefit from it and how long you’ll need it. 

Permanent or Term? 

Life insurance can be classified into two principal types: permanent or term. Both have different strengths and weaknesses, depending on what you aim to achieve with your life insurance policy. 

Term life insurance provides death benefits for a limited amount of time, usually for a fixed number of years. Let’s say you get a 30-year term. This means you’ll only pay for each year of those 30 years. If you die before the 30-year period, then your beneficiaries shall receive the death benefits they are entitled to. After the period, the insurance shall expire. You will no longer need to pay premiums, and your beneficiaries will no longer be entitled to any benefits.

Term life insurance is right for you if you are: 

  • The family breadwinner. Death benefits will replace your income for the years that you will have been working, in order to support your family’s needs.
  • A stay-at-home parent. You can set your insurance policy term to cover the years that your child will need financial support, especially for things that you would normally provide as a stay-at-home parent, such as childcare services.
  • A divorced parent. Insurance can cover the cost of child support, and the term can be set depending on how long you need to make support payments.
  • A mortgagor. If you are a homeowner with a mortgage, you can set up your term insurance to cover the years that you have to make payments. This way, your family won’t have to worry about losing their home.
  • A debtor with a co-signed debt. If you have credit card debt or student loans, a term life insurance policy can cover your debt payments. The term can be set to run for the duration of the payments. 
  • A business owner. If you’re a business owner, you may need either a term or permanent life insurance, depending on your needs. If you’re primarily concerned with paying off business debts, then a term life insurance may be your best option. 

Unlike term life insurance, a permanent life insurance does not expire. This means that your beneficiaries can receive death benefits no matter when you die. Aside from death benefits, a permanent life insurance policy can also double as a savings plan. A certain portion of your premiums can build cash value, which you may “withdraw” or borrow for future needs. You can do well with a permanent life insurance policy if you: 

  • …Have a special needs child. As a special needs child will most likely need support for health care and other expenses even as they enter adulthood. Your permanent life insurance can provide them with death benefits any time within their lifetime.
  • …Want to leave something for your loved ones. Regardless of your net worth, permanent life insurance will make sure that your beneficiaries receive what they are entitled to. If you have a high net worth, permanent life insurance can take care of estate taxes. Otherwise, they will still get even a small inheritance through death benefits.
  • …Want to make sure that your funeral expenses are covered. Final expense insurance can provide coverage for funeral expenses for smaller premiums.
  • …Have maximized your retirement plans. As permanent life insurance may also come with a savings component, this can also be used to help you out during retirement.
  • …Own a business. As mentioned earlier, business owners may need either permanent or term, depending on their needs.

A permanent insurance policy can help pay off estate taxes, so that the successors can inherit the business worry-free. Different people have different financial needs, so there is no one-sized-fits-all approach to choosing the right insurance policy for you. Talk to us now, and find out how a permanent or term life insurance can best give you security and peace of mind.