All Posts by Bonnie Sainsbury

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Should I Invest in my TFSA or RRSP?

By Bonnie Sainsbury | Investments , Small Business

When you start thinking about your retirement, you need to consider what vehicle to use for that retirement. You can obviously use more than one vehicle too. We’re talking about whether you should use a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP). Before you do anything, you should talk to your financial planner.
Tax-Free Savings Account (TFSA)
What is a TFSA?
The Tax-Free Savings Account (TFSA) program began in 2009. It is a way for individuals who are 18 and older and who have a valid social insurance number (SIN) to set money aside tax-free throughout their lifetime. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax-free, even when it is withdrawn.  Administrative or other fees in relation to TFSA and any interest or money borrowed to contribute to a TFSA are not deductible. 
Pros
• This is a savings account where you can invest in any type of investment you want, depending on your risk tolerance level.
• Withdrawals will be added to your TFSA contribution room at the beginning of the following year.
• You can replace the amount of the withdrawal in the same year only if you have available TFSA contribution room.
• On your death, the TFSA is disbanded and any earnings after your death are taxed, or transferred to your spouse
Cons
• Your contribution limit only goes up by $5,500 per year.
• Direct transfers must be completed by your financial institution.
• A tax applies to all contributions exceeding your TFSA contribution room.
A TFSA is a great way to save for retirement. Especially if you ever need to withdraw the funds to cover something, you can put it back when you have the funds, and the contribution room. However, if you need a tax deduction, then it may not be the way to go.
Registered Retirement Savings Plan (RRSP)
An RRSP is a retirement savings plan that you establish, that we register, and to which you or your spouse or common-law partner contribute. Deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax if the funds remain in the plan; you generally must pay tax when you receive payments from the plan.
Pros
• You can contribute up to your limit every year, and get that amount taken off your current income, no matter what that income.
• You accumulate your contribution amount every year that you don’t use it.
• You can go up to $2,000 over your contribution limit without being taxed on that over contribution.
• You can contribute to a RRSP for your spouse, and claim the deduction, and any withdrawals are taxed as that spouses’ income.
• You can invest in bonds, mutual funds, or securities (listed on a designated stock exchange).
Cons
• Only employment (T4) income is used to calculate your contribution limit every year.
• Any other pension contribution is applied against your contribution limit, thereby reducing what you can contribute yourself.
• You are taxed on any contributions that go more than $2,000 over your contribution limit.
A RRSP is a great way to save for your retirement, and get a deduction off your income for tax purposes. However, you do need to have the income in order to grow your contribution room, and the funds in order to contribute.
A good plan is to get in touch with a financial planner who can help you come up with a retirement plan, and how you can invest your funds into a RRSP or a TFSA. Or, maybe both. You need to know your contribution levels before you talk to a financial planner. You can do that via My Account. If you don’t have that yet, then sign up for it here.

Tax Fundamentals for Home Business Owners

By Bonnie Sainsbury | Personal Income Tax , Small Business

Presentation of structure of taxationOne of the most important things that new business owners need to learn is how to file the proper taxes for their business. When you were employed in a regular office, all you probably had to worry about was your income tax. But now that you own a business, you will have to learn a little bit more about the tax system.

Qualifying for Tax Exemptions

The good news about being a home business owner is that you can qualify for certain tax exemptions or deductions. The only major requirements are that you should be running the business from home and that you have a clearly defined office area within your home. These tax breaks are specifically designed to help home businesses prosper despite limited resources. To learn more about them, inquire with your local government.

Keeping Business Records

In every kind of business, having an organized system for keeping records is absolutely essential. Every single document that has something to do with your business should be properly filed. And yes, that includes the seemingly insignificant receipts for office supplies or the gas you used for business travel.

Deducting from Home Expenses

Since you are running your business from home, and you have a legitimate office area inside your house, you can enjoy some tax deductions on your home payments and utility bills. For instance, if you are using about a fifth of the total floor area of your home for your business, you can claim a fifth of your total utility expenses. Even if you are just renting your space, you can still claim a portion of your rent.

Taking Care of Self-Employment Taxes

Being self-employed means you have to take care of paying your own medical and Canada Pension Plan taxes, which would typically be the responsibility of your company if you were employed in a regular office. You are responsible for both portions of CPP, which is 9.9% of your net income up to a maximum for the tax year. There may also be other taxes you need to pay, depending on regulations.

Getting Assistance

For most new business owners, dealing with all these taxes can be very confusing, especially if they don’t have any prior experience in the matter. In you find this tax business confusing, you can make the job a lot easier by using a tax software that will do all the computations for you. Many of these programs are available for free and are very easy to learn.

Another option is to hire a bookkeeper and/or an accountant. You’ll have to pay him for his services, of course, but oftentimes, the money you pay a bookkeeper or an accountant is more than worth the savings he can help you realize. You may want to hire both, the bookkeeper to perform the daily entering and reconciling, and the accountant for taxes. With an accountant’s knowledge and expertise, he can reduce your total tax by a significant percentage — much more than you can ever get by just relying on a tax software.

The Importance of Filing Taxes on Time

One of the common mistakes new business owners make is undermine the importance of paying their taxes before the deadline. Even a single late payment will not look good on your record so make sure you keep track of tax deadlines at all times. If you find come tax time that you don’t have the funds to pay, still file. That avoids a late filing penalty, which can be substantial if you miss year after year.