Your contribution limit for 2014 is 18% of your 2013 earned income (to a maximum of $24,270) less the value of any benefits that accrued to you in 2013 as a member of a Registered Pension Plan or a Deferred Profit Sharing Plan (your Pension Adjustment — PA). Your PA was reported by your employer on your 2013 T4 slip. Also, your 2013 Notice of Assessment should include the CRA’s calculation of your 2014 contribution limit, with any unused amounts carried forward from previous years. This information is also available on the CRA’s “My Account” service. Your RRSP contribution must be made on or before March 2, 2015 to be deductible for 2014. If you don’t have the necessary funds, consider borrowing to make the contribution. Although interest on an RRSP loan is not deductible, borrowing may still make sense if you can repay the loan quickly. If you receive a tax refund, you can apply it to the loan to reduce the balance outstanding.
If you decide not to contribute for 2014, your ability to do so carries forward indefinitely. However, even if you don’t need the deduction for 2014, you should still consider making the contribution if you have excess funds which would otherwise earn taxable income in your hands. You can claim the deduction in any future year. The income from the funds will accumulate tax-free in your RRSP.
If you have excess investment funds, make your RRSP contribution for next year as soon after December 31 as possible, to maximize the tax deferral of income earned in the plan. For 2015, the RRSP limit is the lesser of 18% of your 2014 earned income (less your 2014 PA) or $24,930.
You can also make a one-time overcontribution to your RRSP. Penalties do not apply if the amount is less than $2,000 and, as noted above, income from the funds will accumulate tax-free in your RRSP. You should keep in mind that the CRA does track RRSP overcontributions, and penalties apply on most overcontributions in excess of $2,000.
If there’s one thing everyone can agree on, it’s that we’d all like to pay less tax. No matter how much you earn or what your personal circumstances, you work hard for your money and you want to hold on to as much of it as you can. In Canada, we’re fortunate to have access to a variety of means to reduce our tax burden. You just have to know where to look. The system is complex and it’s not always clear where the opportunities lie. That’s where we can help. We have provided a link to a copy of the “Tax Planning Guide 2013-2014″, provided by Raymond Chabot Grant Thornton. The guide includes tips, strategies and suggestions to help you achieve the following goals:
• Understand your tax situation
• Reduce your income tax
• Benefit from government incentives
• Execute tax-effective investment strategies
• Think about your future
Whether you read this book cover to cover or pick and choose the sections that are most applicable to your situation, we hope you’ll find useful information that will help you save time, save stress and — perhaps most important — save money.
If you need further assistance with implementing any of the strategies provided in the guide please contact us via email at firstname.lastname@example.org
Income Tax Checklist
Listed below are items that you should consider when preparing your income tax return:
- Do you have any carry over deductions from prior years such as RRSP’s, Donations, Unused tuition fees or student loan interest, Home office expenses, LSVC credits, Net Capital losses or Non Capital losses?
- Did you contribute to an RRSP in the year or within 60 days of the next year?
- Did you make any payments to a union or professional organization?
- Did you make any payments for childcare?
- Did you make any attendant care expenses?
- Did you invest in any companies that have gone bankrupt?
- Did you sell any investments at a loss?
- Did you move and change employment or self employment?
- Did you pay for a safe deposit box?
- Did you pay interest on any loan taken out for investment purposes?
- Did you pay for investment accounting?
- Did you pay alimony or support payments?
- Did you use your vehicle to travel for your work?
- Did you have an office at home?
- Did you pay legal fees to enforce payment of alimony or maintenance?
- Did you pay legal fees to enforce payment of wages?
- Did you repay any Employment Insurance?
- Did you receive an allowance for a clergyman’s residence?
- Did you receive an allowance from your employer for auto expenses?
- Did you live in a remote Northern location and receive travel allowances?
- Are you a partner in a same sex relationship?
- Are you married or living common law?
- Are you single and did you support a dependent?
- Are you or your spouse/partner over 65?
- Did you or your spouse/partner receive pension income?
- Are you or your spouse/partner disabled?
- Are any of your dependents disabled?
- Did you pay interest on your student loan?
- Did you or your spouse/partner or dependents pay tuition fees?
- Did you have any medical expenses?
- Did you make payments to a health plan at work or privately?
- Did you make any donations to a registered charity?
- Did you make any donations to a registered political party?
- Did you make any labor sponsored funds?
- Did you have any self employed income?
- Did you hire an assistant?
- Did you pay for supplies used in your work?
- Were you paid in part by commissions?
For assistance and to consult with us on your personal tax situation call or email us at: 613-884-0208, email@example.com.
Need a little extra cash for Christmas? Want to start on a good financial footing in 2012? Your family’s tax returns are a great place to start, because you may just find a lump of gold hiding in year end tax planning opportunities. In a volatile investment environment, being tax astute can add double digits to your cash flow and investment portfolios. Following are seven tax tips to discuss with your tax and financial advisors before year end:
- Recover taxes owing your clients from prior years. It is everyone’s legal right to arrange affairs within the framework of the law to pay the least income taxes possible–especially if cash flow is tight. Lots of people put off filing their returns because they think they may owe money, but in fact, the tax department may owe them (Always nice when that happens!). Tax refunds resulting from errors and omissions may be recovered over a ten year period; so if you’re a delinquent filer or you missed an important tax saving provision be sure to adjust your tax returns by December 31. After this the 2001 tax return is statute-barred. Remember, by filing a return you can also create unused RRSP contribution room, and capital loss carry forward or carry back opportunities.
- Don’t overpay your quarterly installments: If you have a quarterly tax installment due on December 15, or in the case of farmers, December 31, and you haven’t yet paid it, be sure to calculate your estimated income the current tax year first. If your income will be lower than in past years, you may be able to reduce that payment, or not make it at all. To use the optional “current year” or “prior year” methods of calculating your installments, check out the CRA–Canada Revenue Agency‘s publication P110 Paying Your Income Taxes by Installment. This is also a nice way to create new capital for investment purposes, or, that much needed vacation!
- Compute your family RRSP Advantage: Most Canadians do not maximize their opportunity to contribute to an RRSP—and that’s a shame. It can truly save you a lot of money if you do, yet the time to plan to put the money aside is now. To be most effective it should be made earlier rather than later according to your available RRSP room.
The RRSP deduction reduces net income — that line on the tax return upon which refundable and non-refundable tax credits are based. A reduced net income increases those credits and therefore cash flow, leaving more money for investment opportunities. Planning now to contribute to an RRSP for each family member who has RRSP Contribution Room (check last year’s Notice of Assessment for this figure) is smart: it can affect family net income and increase tax credits and deductions that are transferrable. The RRSP makes a great Christmas present too: and helps couples split retirement income later under a spousal plan. Also, if cash flow is scarce, consider which assets held in non-registered accounts could be flipped into an RRSP. Talk to your tax and financial advisors about that to superficial loss rules.
- Consider tax loss selling activity. Year end is a good time to consider selling portfolio losers to offset winners. Capital losses generated by the sale or transfer of stocks and bonds in a non-registered portfolio before year-end will first offset other capital gains incurred this year. Unused losses can be carried back to offset capital gains you reported in any of the previous three years — a great way to reach back and recover taxes previously paid. Or, you can carry unused capital losses forward, indefinitely — an important way to manage taxes on your next winning investments.
- Split income and transfer assets. The current low interest rate environment is opportune if you wish to borrow money to increase your portfolio or split income with family members. In the former instance, interest on your investment loan will be tax deductible, provided your assets generate a reasonable expectation of income from property in the future, i.e., interest, dividends, rents or royalties. (Note: capital appreciation is not considered income from property.) For family income splitting purposes, draw up a bona fide loan with your lower earning spouse and charge the prescribed interest rate, to enable the reporting of investment income in that person’s hands. The interest, however, must actually be paid to you by January 30 following each taxation year and you must, of course, report it on your tax return.
- The TFSA is a must. Give your adult children a valuable Christmas gift: open a Tax Free Savings Account and make sure you and/or they maximize the opportunity to invest up to $5000 in it each year. The earnings will be tax free and the opportunity to use this valuable savings room will build family millionaires—when you consider the annual opportunity.
- Donate Securities. Capital gains can be avoided entirely when qualifying securities with accrued gains are transferred to a family’s favorite charity before year end. In addition, a receipt for the donation will offset taxes payable. That’s a win-win, and worth a portfolio review in the last three months of the year.
Other tax saving tips to consider and discuss before year end include how to:
- Maximize medical expenses
- Annualize tax on bonus payments
- Buy that car or computer before year end to maximize CCA deductions
- Finalize the auto log for 2011; then qualify for “ logging” only 3 months next year
- Move before year end—if your new job or business is in a lower taxed province
- Avoid Clawbacks on OAS and refundable tax credits with net income planning
- Avoid promotional expense claim restrictions for rookie commission sales reps
- Plan for early retirement with new CPP changes starting in 2012
- Start receipt sorting early: this year, be on time and be audit-proof
It’s Your Money. Your Life. A tax-wise investor becomes wealthier over the long run, no matter the current economic cycle. Most people leave tax savings on the table. Maximize your potential to reduce your after-tax income in the last quarter of this year!
Canada’s tax system is based on self-assessment, which means that individuals are responsible for accurately completing and filing their tax returns on time. The Canada Revenue Agency (CRA) provides Canadians with the information they need to meet their income tax obligations.
See link below for link to CRA website:
If you have received one of these letters from the CRA and you need assistance we can help.
Contact us to setup an appointment: firstname.lastname@example.org or Call 613-884-0208