tax

Now that we are nearing year end, it’s a good time to review your finances. With the federal election over and no major tax personal tax changes for this year, 2019 is a good year to make sure you are effectively tax planning.

Financial Tech Tools Nov 22, 2019

Now that we are nearing year end, it’s a good time to review your finances. With the federal election over and no major tax personal tax changes for this year, 2019 is a good year to make sure you are effectively tax planning. Below, we have listed some of the key areas to consider and provided you with some useful guidelines to make sure that you cover all of the essentials. We have divided our tax planning tips into 4 sections:

Tax deadlines
Family tax issues
Managing your investments
Retirement planning

Tax Deadlines for 2019 Savings

December 31, 2019:

If you reached the age of 71 in 2019, contributions to your RRSP
Use up your TFSA contribution room
Contribute to RESP to get the Canadian education savings grant and the income-tested Canada learning bond.
Contribute to RDSP to get the Canada disability savings grant and the income-tested Canada disability savings bond.
Medical expenses
Investment counsel fees, interest and other expenses relating to investments
Some payments for child and spousal support
Fees for union and professional memberships
Student loan interest payments
Deductible legal fees
Charitable gifts
Political contributions

January 30, 2020:

Interest on intra-family loans
Interest you must pay on employer loans, to reduce your taxable benefit

February 29, 2020:

Contributions to provincial labour-sponsored venture capital corporations
Deductible contributions to a personal or spousal RRSP
RRSP Repayment under Home Buyers Plan or Lifelong Learning Plan

Family Tax Issues

Check your eligibility to the Canada Child Benefit

In order to receive the Canada Child Benefit in 2020/21, you need to file your tax returns for 2019 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 Tax on Split Income rules.

Contribute to Registered Education Savings Plan (RESP)

The Registered Education Savings Plan (RESP) is a savings plan for parents and others to save for a child’s education. The Canada education savings grant (CESG) will match up to 20% of contributions up to $2,500. That means the CESG can add a maximum of $500 to an RESP each year. Grant room accumulates until the child turns 17, therefore unused basic CESG amounts for the current year are carried forward for possible use in the future years. The income-tested Canada learning bond (CLB) is paid directly to the RESP by the Canadian government to low-income families. There are no personal contributions required to receive the CLB.

Contribute to Registered Disability Savings Plan (RDSP)

The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others to save for the financial security of a person who is eligible for the disability tax credit (DTC). The Canada disability savings grant will pay matching grants of 300%, 200% or 100% depending on the beneficiary’s adjusted family net income and amount contributed. The income-tested Canada disability savings bond is paid directly to the RDSP by the Canadian government to low- income Canadians with disabilities. Before December 31 of the year you turn 49 years old, you can carry forward up to 10 years of unused grant and bond entitlements to future years, as long as you met the eligibility requirements during the carry forward years.

Managing Your Investments

Use up your TFSA contribution room

If you are able, it’s worth contributing the full $6,000 to your TFSA for 2019. You can also contribute more (up to $63,500) if you are 28 or older and haven’t made any previous TFSA contributions.

Contribute to Registered Education Savings Plan (RESP)

Contribute to Registered Disability Savings Plan (RDSP)

The Registered Disability Savings Plan (RDSP) is a savings plan for parents and others save for the financial security of a person who is eligible for the disability tax credit (DTC). The Canada disability savings grant will pay matching grants of 300%, 200% or 100% depending on the beneficiary’s adjusted family net income and amount contributed. The income-tested Canada disability savings bond is paid directly to the RDSP by the Canadian government to low- income Canadians with disabilities. Before December 31 of the year you turn 49 years old, you can carry forward up to 10 years of unused grant and bond entitlements to future years, as long as you met the eligibility requirements during the carry forward years.

Donate securities to charity

Make a donation by year end will provide you tax savings. If you donate eligible securities or mutual funds, capital gains tax does not apply, and you can receive a tax receipt for their full market value. Also, the charity gets the full value of the securities.

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 24, 2019 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 2019 in order to be taxed on the income the following year.

Consider the timing of purchasing of certain non-registered investments

If you are considering purchasing an interest-bearing investment like a guaranteed investment certificate (GIC) with a maturity date of one year or more, you may consider delaying the purchase to the following year, so you don’t have to pay tax on accrued interest until 2021. You should also consider this with mutual funds that make taxable distributions before the end of 2019, consider delaying this until early 2020. Don’t pay taxes earlier than necessary.

Check if you have investments in a corporation

The new passive investment income rules apply to tax years from 2018. 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. At a provincial level, Ontario and New Brunswick have indicated that they are not following the federal rules to limit access to the small business deduction.

Retirement Planning

Make the most of your RRSP

The deadline for making contributions to your RRSP for the year 2019 is February 29, 2020. 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 $26,500 for 2019 and $27,230 for 2020
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 2019 and your final contributions should be made by December 31, 2019.

Convert to RRIF before year end

If you’re 65 or older in the year, you’re entitled to a pension credit that can fully or partly offset the tax on the first $2,000 of eligible income annually. Consider setting up a RRIF before year-end to pay out $2,000 annually if you don’t have any other eligible pension income.

Retirement planning can be a complex process for us all, but if you are the owner of a small business it may can get even more complicated, due to the various factors and circumstances that you have to take into consideration. A common mistake made by small business owners is reinvesting extra money to grow their business, at the expense of putting it aside to save for their retirement.

Financial Tech Tools Nov 1, 2019

Retirement planning can be a complex process for us all, but if you are the owner of a small business it may can get even more complicated, due to the various factors and circumstances that you have to take into consideration. A common mistake made by small business owners is reinvesting extra money to grow their business, at the expense of putting it aside to save for their retirement.

Although there is no magic formula for getting started on a retirement strategy for your business, there are some general principles which might help you to get a handle on the steps that you need to take. One of the key ideas is the consideration of both your business and your personal finances and how to structure and integrate the two in order to create a robust retirement financial strategy.

Here are some tips on how to get started on a retirement plan.

Set aside time to plan for the future – It’s important to make retirement planning a priority, or you run the risk of never getting around to it. A professional financial planner can help you to assess your personal circumstances and create a personalized plan that suits you and your business, with the right balance between saving and reinvestment to help your business to grow.
Think about your future retirement income – Here are the main sources of retirement income that small business owners usually rely on:

Equity held in your business – If your business is successful, you are likely to benefit from equity from it in your retirement. Selling your company is an option, particularly attractive to some as, in some cases, you could benefit from the lifetime capital gains exemption on the sale. Of course, finding the right person to run your business in the future is easier said than done. A clear succession plan, created in advance of your retirement, can help you to ensure that business continuity will be affected as little as possible and will give you peace of mind as you approach your retirement. You may also want to consider using the expertise of an accountant or mergers and acquisitions specialist to help you to value your business correctly and also look after your interests when liaising with potential purchasers.
Alternatively, you may choose for your children to inherit your business, or you may decide to retain ownership of dividend-paying preferred shares in order to maintain an ongoing source of income.
Registered plans – A Registered Retirement Savings Plan (RRSP) can offer personal tax deductions on your contributions, plus your savings will grow as tax-deferred whilst in the plan. In addition, tax-free savings accounts (TFSAs) can be a useful way to save tax-free in particular circumstances.

Consider offering a retirement savings plan to your employees – Paying your statutory contribution of the Canada Pension Plan is just the minimum – many small businesses choose to offer their employees enhanced pension contributions as an incentive or employee benefit. For example, you could match their RRSP contributions to a set limit, to help their retirement nest grow more quickly. Alternatively, you could offer a benefit plan with an investment contribution package from an insurance company, which can be a more straightforward and cost-effective choice.

Be sure to diversify – As a small business owner, you should avoid putting all of your eggs in one basket, financially speaking, as this could leave you vulnerable to changes in the market. Try to diversify your investments and spread your funds in order to protect yourself and engage the help of a professional where necessary to help you to do so.

In summary, it’s important to remember that retirement planning is a process which is unique and personal to your own and your business’ circumstances and there is no uniform approach which works across the board. Take time to take stock of your current situation, as well as your goals for the future and this will help you to create a retirement plan that is right for your needs, both current and future.