Category Archives for "Personal Income Tax"

Need Money? Should you Withdraw from your RRSP?

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

Most of us do not think about withdrawing from our RRSP until we retire, but in some instances it might make sense to cash in a portion of your savings early to help finance your studies, buy a home or help you get through financial difficulties during the present pandemic.  Here are some examples of times you might want to access your RRSP funds.

  • If you want to become a homeowner but you are finding it difficult to save up enough for a down payment, through the Home Buyers' Plan (HBP) you may be able to get the financial boost that you need.  Under this plan you can withdraw up to $35,000 from your RRSP to buy or build a home provided that you are a first time buyer (defined as not having owned a home in the four year period preceding a home purchase).  The amount that you take out is repayable over 15 years.  Repayments are made as a RRSP contribution designated as a repayment on your tax return.  If you don't make a repayment the amount required will be included as income on your tax return.  Contributions must be in the RRSP for 90 days before they can be withdrawn under the HBP.
  • If you want to further your education by learning new skills or training for a new career you can enrol in the Lifelong Learning Plan (LLP) that allows you to withdraw funds from your RRSP to fund your tuition and help with other costs.  The plan allows you to withdraw up to $10,000 in a calendar year up to a total of $20,000.  The funds have to be repaid over a period of ten years avoid it being included as income.  
  • If you have income volatility an early withdrawal might make sense. Only the HBP and the LLP allow you to withdraw funds from your RRSP tax free if you have no other income in the withdrawal year your tax rate may be low.  Alternatively you could move the money from to a TFSA without paying much tax.  In both your RRSP and TFSA you need to make sure when you are making withdrawals and paying back that you do not go over your contribution limit in a year.    
  • If you expect to have a clawback on your OAS and you decide to retire at 60.  In that instance your income will probably drop until you reach age 65 when you will start to receive your company pension, CPP, OAS and money from your RRSP.  As your total income at age 65 may exceed the OAS clawback limit ($79,054 in 2020) your OAS will be subject to a clawback and 15% tax.  It would make sense to withdraw money from your RRSP over these five years probably saving you a lot of tax.  If you don't need the money it might make sense to use your RRSP for income until you reach age 70 as each year you defer claiming your government benefits means that they will increase.

However you decide to use your RRSP you need to do it with caution bearing in mind that the intent of a RRSP is to contribute regularly to a fund and let the money grow over the years until you retire.  Don't forget that any withdrawals are taxable.

From an article by Margaret Craig-Bourdin

Financial Literacy Lessons Should Begin Early in Life

By Randall Orser | Budget , Investments , Personal Finances , Personal Income Tax

For most of us money management was not a subject taught in our schools.  Today it is recognized that financial literacy should start at an early age and should be taught in schools.  The Ontario government recently announced that this would be a subject that would be included in the 2020 curriculum which would be a win-win situation for both children and their parents enabling children to achieve a more stable financial future.  Other provinces across the country are now also making financial literacy a priority in schools. 

According to Doretta Thompson CPA Canada's financial literacy leader, "financial wellness is a continuum from knowledge, to competency to confidence in making sound financial decisions". "Kids who learn the basics of budgeting, saving, credit and wants versus needs are better prepared to make good financial decisions through post secondary education and beyond." In BC a new provincial curriculum was introduced in 2019 after it was shown that a number of students were graduating with a lack of financial skills.

Experts believe that talking about money and financial management goes beyond dollars and cents, it is also about making choices and being aware of the trade-offs those choices require.  The classroom setting gives children the opportunity to ask questions about money such as creating a budget to allow them to save up for a toy.  It is important that teachers are comfortable teaching financial literacy especially if they are struggling in their own financial situation.

Teaching money management in school is a good foundation for kids to learn but it is important that parents engage with their children about what they are learning.  Other strategies for parents including giving kids an allowance and teach kids about spending and saving, involving them in family financial decisions where appropriate for their age and reviewing the kid's first pay stub to make sure that they understand about deductions and taxes.

Although it can be difficult for parents to discuss money with their kids it is a good idea to use every day examples to teach about money in a way that make it relevant to them.  Examples can pop up all the time such as when grocery shopping or getting gas. 

From an article by Ethan Rotberg

Over-contributed to your TFSA or RRSP? Here’s what you should do.

By Randall Orser | Investments , Personal Finances , Personal Income Tax , Retirement

It can be an easy mistake to over contribute to your TFSA or RRSP especially if you have an amount automatically contributed each month. If you find that has happened to you there are some basics that you should know to remedy this situation.

RRSP Contributions

The penalty for RRSP over contributions is 1% per month for each month that you are over the limit.  The CRA  does allow you a $2000 grace amount for over contributions but that amount is not tax deductible.  The best way for you to correct an overpayment is to withdraw the amount, though it will be subject to taxes.  You will be able to claim an offsetting deduction if you meet certain conditions (link to CRA Website).  The main condition is that you make sure the the over contribution is withdrawn in the year that it was made, the year in which you receive an assessment for the year of contribution, or in the year following each of these years.

If you meet the conditions for offsetting deduction you can have withholding tax waived on the withdrawal by filing form T3012A.  If you don't do this then the tax withheld at source can be claimed as tax paid on your tax return.  It is very important to keep track of your RRSP contributions and make sure that you withdraw any over contribution so as to penalties that may arise.

TFSA Contributions

Over contributions to TFSA's happens often especially when people have multiple accounts in different banks and they lose track of those accounts over time.  As the limits allowable have varied depending on the year it can become really confusing to contributors.  Two common mistakes are:

  • Replacing a TFSA withdrawal in the same year - if your contribution limit has already been reached you have to wait to replace a withdrawal until January in the next calendar year.  This often happens when the TFSA account is used in the same way as a savings account with repeated withdrawals and contributions which can create an over-contribution as withdrawals do not lower the contribution limit.
  • When a TFSA balance is transferred to another institution, if this is not done as a direct transfer it will be counted as a second contribution and the withdrawal amount will not be added to your  TFSA room until the following year.

TFSA over contributions are 1% per month over the term of the over-contribution until the year end based on the highest excess amount for the month.  There is no $2000 grace amount as with a RRSP and penalties for over contribution must be paid by June 30th.

For more information on TFSA contributions see the CRA's TFSA Guide (RC4466) which also provides you with a RC343 worksheet  for you to keep track of your contributions and withdrawals.  It is also important to review your notice of assessment that you receive from the CRA which states how much contribution room that you have in your TFSA and RRSP for the current year.  It is a good idea to compare the CRA amounts with your own records.   In addition you can get a copy of your contribution history from the CRA's My Account service.

From an article by Denise Deveau

Financial Considerations for First Time Home Buyers

By Randall Orser | Investments , Personal Finances , Personal Income Tax

The Covid-19 pandemic has not stopped people from wanting to buy a home for the first time.  However it is necessary to do some long term planning including preparation for the unknown before taking the plunge into the housing market.

Canadian house sales rebounded by 63% month over month in June showing that the real estate market seems to be holding steady despite the financial problems that the pandemic has caused.  However the Canada Mortgage and Housing Corporation (CMHC) predicts that home prices will fall up to 18% due to job losses, declining income, stalling construction and it has now tightened lending restrictions.  Despite this, Canadians are still feeling optimistic about the real estate market mostly due to the all time historic low interest rates.

If you are thinking about purchasing your first home you should consider the following:

1.  Adjusting your expectations - even if you are relatively unscathed by the pandemic and still have stable employment it is a good idea to weigh your needs against what you want to own and adjusting your expectations.  For example do you really need a single detached home?  If you are working remotely would living outside of the city where property is usually cheaper to buy be an option?  Do you really need a backyard? if not would a condo work for you?  Making adjustments to your expectations will help you to better assess what you can comfortably afford while maybe retaining some of your savings.

2.  What you can afford should be based on your lifestyle not low interest rates. You should not be stretching yourself beyond the limits of what you can really afford while still retaining your lifestyle.  Though low interest rates are a plus for many the CMHC says it is important to consider the losses that you may suffer should house prices decline. Making a bigger downpayment will help to protect you against these possible future losses. 

3.  Align your budget - make sure your budget is realistic and something that you can stick to. Use it to determine the down payment that you can make while accounting for your expenses and leaving some money for savings.  You should consider your cash flow and liquidity and make contingency plans preparing for a worst case scenario such as job loss or unexpected costs.   It is important to maintain your savings rather than relying on credit to help you pull through difficult times.  

4.  Plan for hidden costs - purchasing a home involves a lot more than just your down payment, mortgage payments and the interest rate and you need to be prepared for these extra costs.  These include:

  • Closing costs - legal and administration fees which can account for 1.5 to 4% of the purchase price, land transfer tax, and title insurance.
  • Upfront costs - such as property inspections, condominium fees and mortgage default insurance if required.
  • Less obvious expenses that may vary depending on where you live but for new developments can include infrastructure, planning approval and zoning fees.  It is advisable to seek legal advice to review this type of purchase agreements as the fees can mount up and it is important to set some preset limits on what they are going to be.
  • Additional expenses - besides property taxes, utilities and insurance homeowners should also have a fund to cover repairs and other unexpected costs that pop up.

From an article by Sophie Nicholls Jones

Will Covid-19 Relief Measures Affect my Taxes?

By Randall Orser | Business Income Taxes , Employees , Personal Finances , Personal Income Tax , Small Business

Accountants are not completely certain how the various government benefits being received by individuals and businesses during the pandemic will affect their tax bill next year.  However what will be certain is that if the benefit is a taxable benefit then you need to be prepared to pay tax on it in 2021 when you file your 2020 tax return.

As of April 2020 here is the information available from the CRA website and current legislation.

1. For Individuals

  • Any CERB payments are taxable, any payments that you have received will have to entered onto your tax return and an information slip will be available to you next year in MyAccount under Information slips so that you can enter your income in the correct boxes on your tax return.
  • One time additional payments for the Canada Child Benefit and the GST/HST tax credit are tax free and it is not expected that this will change in 2020.  The GST payment is also tax free and it is not expected that this will change.
  • If your student loan payments have been suspended then you will probably not have as much allowable student loan interest to claim on your income tax return as long as it is a qualifying student loan per CRA guidelines.
  • Deferred payments under mortgage support are added to the outstanding principal balance and are repaid over the life of the mortgage.  The mortgage support system is managed specifically by your lender and any deferral of payments is an arrangement between you and them.  The only impact on your taxes might be experienced by those who are self-employed who are able to claim business use or use of home expenses on their tax return.
  • The minimum withdrawal limit under the RRIF has been reduced by 25% for 2020 which means that if you take out less money you will pay less tax as money in your RRIF is only taxable when it is withdrawn.  

2. For Businesses

  • Tax credits and other benefits provided by the government still apply so any money received as a wage subsidy is considered government assistance and is included in the employers taxable income.  If you apply for the CEWS benefit you need to understand the tax implications of receiving this benefit.  The subsidy must be noted in your bookkeeping records and will become part of your business income that you report on your T2125.  
  • The TEWS or Temporary Wage Subsidy will be recorded in the same way.  The subsidies are a reduction in the amount that you send to the government for income taxes that you withheld from your employees and it becomes income for your business.  

It is paramount that you keep accurate accounting records throughout 2020 as they will be very important when you do your tax return in 2021.

From an article by Susan Watkin

Covid-19 Now is the Time to get Serious About Your Financial Wellness

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

A survey done for the MNP Consumer Debt Index when the Covid-19 pandemic started showed that 49% of Canadians asked were $200 or less away from being able to settle their bills and 25% of these people said they were already behind on their payments. In this uncertain economic environment are many are unable to realize their life goals and some even face bankruptcy.  

Lack of financial security is a big cause of stress, lack of sleep and tension in relationships as people and couples are unsure about what their future will look like.  In fact 41% of Canadians say that money concerns are the biggest cause of stress in their life  The fear of the financial impact of the pandemic is a greater contributor to mental health than getting sick or losing a loved one.

This information begs the question "Why are people finding themselves in this financial predicament? There are a number of answers to this question including costs rising faster than wages which has caused many to incur debt, but the big reason has to be ignoring the necessity of financial planning.  Financial planning includes saving for the future, retirement and making informed financial decisions and living within one's means and building a emergency fund. The pandemic brings to the forefront this long avoided issue, it is time to become responsible for your financial health. 

Many use the lack of financial knowledge as a reason for not planning. This is no excuse for avoiding the issue as financial literacy can be gained from books, seminars, blogs, websites and from working with a financial planner, there is lots of help out there.  Here are some tips that may help your immediate financial situation:

  • Make a new financial plan, your income may have been reduced and you need to revise your budget and priorities accordingly.  If you are not able to pay your bills, you should not be contributing to your child's college fund making contributions to your RRSP.   
  • Don't worry about paying down debts quickly, make minimum payments and put the rest into an emergency fund.  Your emergency fund should be enough to cover three to six months of  expenses should your income be severely reduced.
  • Take advantage of the help that your bank may be offering such as reduced interest rates on credit cards, deferred mortgage payments and low interest loans or lines of credit to pay off higher interest debts.
  • Instead of making plans for the next 10 or 20 years make your financial plans cover a shorter period of time. 

Making the decision to start taking control of your finances or making your financial goals more realistic will help you to deal with the stress that the pandemic is causing.

See our previous articles for more information:

​Financial Skills you Should Have Learned in High School

Reasons why you Should Budget your Money

What does your CRA Notice of Assessment Mean?

By Randall Orser | Personal Finances , Personal Income Tax

You can look at your CRA Notice of Assessment as a receipt for filing your tax return and an annual statement that tells you how much income tax you owe, how much you can expect for a tax refund, what income tax you already paid and any tax credits that you are eligible for. 

The NOA is calculated from the information that you submit on your tax return and contains a lot of information that you may need to make future financial decisions.  If you have a RRSP then the NOA is particularly helpful as it tells you the maximum contribution that you can make to your RRSP in the following year.  It is important to know how much room you have so that you do not over contribute and have to pay penalties.  If you participated in the Home Buyer's Plan or the Lifelong Learning Plan and withdrew from your RRSP for those purposes then your NOA will tell you when future payments are due and how much you need to pay. 

You should always keep your notice of assessment in a file along with your receipts for that tax year.  If you see anything in your Notice of Assessment that does not seem correct to you, you have 90 days to formally object or make amendments to any of the information on the document.  A NOA will also inform you if you happen to be the subject of an audit from the CRA.  If you do not agree with the reasons for an audit you have 90 days to make a formal objection.

You can get your NOA in two ways, in the mail from the CRA or when the CRA notifies you that your assessment is available for you to view via CRA Online Mail.  You can register for CRA Online Mail through your CRA MyAccount.  If you lose your paper copy you can use MyAccount to view and print your notices of assessment or reassessment, this includes any notices issued since Feb 9th 2015, and summaries of notices issued after 2004.  If you filed your taxes using NETFILE it can take up two weeks to see your Notice of Assessment. 

From an article by Wealth Simple

What you Should do with your 2019 Tax Refund

By Randall Orser | Personal Finances , Personal Income Tax

Around 19 million Canadians can expect a tax refund in 2020, the average refund is $1400.  In a normal year you might be tempted to go out and splurge with your refund but this year during the pandemic you might want to consider doing something else with your refund.

  • Spend some of it – this might be the last thing that many people might be thinking of doing with their refund as they are out of work or struggling financially.  If this is the case with you, you might consider spending part of it especially in small businesses which are struggling to survive. If you are still working, have a stable income, your debt load is under control and your retirement savings are on track then you might consider spending some or all of your refund.  Consumer spending is necessary to help businesses get back on their feet and help us to get out of the current recession.
  • Use your refund to pay down your debt – especially on those high interest credit cards.  If your bank is allowing you to defer your mortgage payments take advantage of that if you can and redirect your payments to your credit cards or other high interest debt along with your tax refund.
  • Invest for the future – some good financial planning advice is to have at least three months of spending available as an emergency fund.  If you have done this in the past you are probably very thankful for that nest egg right now.  If you have never done this, now might be the time to start your emergency fund, start saving for retirement or add some extra money to your RRSP.  If you are not at your limit investing extra this year should help your tax situation for 2020.  As the investment market has taken a hit this year, you might consider saving your refund to invest in the market when securities may be “on-sale”.
  • Give some away – Charities are hurting as much as if not more than businesses at this time.  Canadians are not donating their money or time as much to help with the important services that charities provide.  If you don’t need all your refund, consider giving some to your favorite charity.
  • Upgrade your skills – if you have lost your job due to Covid-19, think about upgrading your skills to make yourself more marketable when looking for a new job.  This is a good time to consider how you can upgrade your skills and you can use your tax refund to help pay for that training.
  • Finally, many things have changed in 2020 due to Covid-19.  Millions of people have received government support most of which is taxable, but no tax has been withheld from payments such as the Canada Emergency Response Benefit.   You might be surprised next year to find that you owe taxes on your 2020 return so it would be a good idea to put your refund in a savings account so that you have some money set aside if instead of getting a refund you have to pay. 
  • From an article by Tim Cestnick in the Globe and Mail 

When can you Expect your Tax Refund this year?

By Randall Orser | Personal Income Tax

Are you wondering when you will get your tax refund this year?  We are all hoping that it will not take much longer than usual. The CRA is still processing returns during the Covid-19 pandemic and they are encouraging Canadians to file their returns as early as possible before June 1st.  This is particularly important if you receive income tested benefits such as the GST/HST Credit or the Canada Child Benefit as the payments for 2020/21 are based upon your return for the prior year and are set to begin in July.

The CRA website says that their goal this year is to send refunds within 2 weeks if you filed online and 8 weeks if you file a paper return.  These timelines are only valid for the returns that they receive on or before their due dates. If you live outside of Canada you can expect to wait up to 16 weeks to receive your refund.  

The CRA is encouraging taxpayers to file their returns electronically using professional tax preparation software.  If your return is selected for a more detailed review than it will take longer to process.  The CRA also encourages taxpayer to use direct deposit to get their refunds quicker.

If you haven't received your refund within the timelines above it may be for any of the following reasons:

  1. You owe or are about to owe a balance
  2. You have a garnishment order 
  3. You have other outstanding debts such as student loans, employment insurance, and over payments of social assistance benefits, or immigration loans and training allowance overpayments.
  4. You have any outstanding GST/HST returns from a sole proprietorship or partnership.
  5. You have a refund of less than $2 due.

New this year due to Covid-19 the CRA is recognizing electronic signatures for forms such as the T183 which is signed in-person by millions of Canadians every year to authorize tax preparers to e-file their returns, even though this is only a temporary administrative measure this year.

If you owe money on your 2019 return you have until September 1st to pay which is four months later than the usual April 1st deadline, and you will not be assessed any penalties or interest on your balance due until September 1st, 2020.  if you pay by instalments you now have until September 1st to pay your June 2020 quarterly personal tax instalment with no accumulation of penalties or interest from March 18th to September 1st, 2020.

From an article by Jamie Golombek Financial Post

Are you one of the Almost 50% of Canadians Taking Advantage of the Tax Deadline Extension?

By Randall Orser | Personal Income Tax

A new survey commissioned by H&R Block Canada has revealed that 45% of Canadians still have to file their tax returns.  Millions of Canadians are taking advantage of the extended deadline to file their personal tax returns. As a result of the Covid -19 pandemic the usual April 30th deadline was extended to June 1st.  Self employed taxpayers and their spouses still have until June 15th to file.

This result is consistent with the CRA filing statistics which show that as of April 27th, 2020 they had received 15.5 million personal tax returns for the 2019 season, way less than the 28.4 total returns filed for the 2018 tax year.

The H&R Block survey also found that 10% of Canadians were not aware that the deadline had changed and 1 in 3 of this group had not yet filed.  Of those still to file 50% plan to do so after the original deadline but before the new one.  These people will avoid penalties for late filing, but you should still file as soon as possible especially those who need their refund, credits and benefits, the sooner they file the sooner they will receive these supports. 

The CRA data shows that up to May 1st,  92.1% of returns were filed electronically and almost 85% of the 14.1 million returns processed so far had either no balance owing or a refund due.  The average refund was $1800.

From an article by Jamie Golombek Financial Times May 1, 2020



1 2 3 23