Federal Government Tax Changes You Should Know About

It sure has been a busy year and the last few months some of the busiest with regards to tax changes. The Federal government has made several announcements to tax changes that may affect you next tax season. Some are good and some not so good. Either way you should be aware of them in order to not only prepare your taxes properly but to plan to reduce any amount you may owe. The changes affect a cross section of Canadians – from young parents to students to the small business owner. TAXplan has made a list of the recent changes to share with you all:

THE BAD:

CRA accepting tax returns 6 days later:

  1. 2017 tax returns will now be accepted by the CRA on Feb.26/18 – that’s 6 days later than last year. If you are absolutely dependent on your tax refund and benefits you’ll have to wait longer to receive it as they won’t start arriving until March so be prepared and get your tax documents into TAXplan as soon as you can. Not sure which documents you need to give us?  Fill out a TAXplan Questionnaire and we’ll tell you exactly what we need from you.

Parents – say goodbye to the Federal children’s fitness & arts credits:

  1. The Federal government has fully eliminated the children’s fitness tax credit and arts amount for 2017. This change amounts to $75 in tax savings for a fully maxed out fitness credit and $37.50 per child for anyone who maxed out the arts amount per child.

A hit to students:

  1. Full time & part-time post-secondary students should be aware that they will no longer be able to claim their education and textbook amounts, federally. However, the good news is you are still eligible for the federal credit for tuition fees. TAXplan likes to give back to students – If you are a full time student you could have you tax return prepared FREE! Contact us to see if you qualify.

A hit to public transit commuters:

  1. The public transit amount has been eliminated which means those of you who commuted in 2017 by public transit can only claim public transit passes purchased January through end of June in 2017.

WE SAVED THE GOOD FOR LAST

Good news for parents of young children:

  1. Canada Child Benefit will increase by 1.5% for the July 2018 to June 2019 benefits. And the even better news is that the Canada Child Benefit is not claimed as income on your tax returns.

Risk is no longer a factor for Canadian Forces and Police Personnel:

  1. The Canadian Forces and Police Personnel deduction is now available to all members on overseas missions regardless of the level of risk they are involved in. This deduction is retroactive to January 1, 2017. Contact a TAXplan TAXpro today to see if you qualify.

Canadian Entrepreneurs see drop in Federal tax rate:

  1. It’s good news for small business owners. Starting January 1, 2018 the small business corporate tax rate will be reduced by 0.5% – which means it will go from 10.5% to 10% with a promise from the Federal Government to reduce it to 9% by January 1, 2019.

Don’t Just File Your Taxes – Plan Them!

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With tax season still months away, most of us are too busy preparing for the holidays to give our tax returns a second thought. While we all want to pay as little tax as possible most of us don’t take the time to plan our taxes.  We wait for March or April to roll around and then madly scramble to get them filed before the deadline.  The truth is if you want to file the best possible tax result you need to put some effort into the planning before tax season rolls around.  Just like last minute holiday gift buying – you don’t always get the best bargain for your buck if you don’t plan ahead.  Being aware of any changes in Canadian Tax Laws early could save you a great deal of stress at tax time.  Here are a few changes that have been proposed or approved to be aware of:

 

  1. Income Sprinkling

Some of the more recent proposed changes that could affect you next tax season include new tax measure against income sprinkling.  Income sprinkling is the process where a small business owner can distribute their business income with his/her spouse or an adult child – even if they are not employees. If the spouse or child is in a lower tax bracket, this sprinkling can result in huge tax savings. If the proposed change goes through it would mean restrictions on the ability to pay salary or wages or dividends to adult children aged 18-34. Adult children will be assessed to determine whether they contribute to the business and whether amounts paid to that child should be taxed at his or her normal tax rates or at the highest tax rate possible.

  1. Tax on Foreign Properties

If you live in Ontario and own foreign property you should be aware that the Government of Ontario has announced a 15% punitive tax on foreign property.  Furthermore, the Federal Government now requires that all property sales must be reported with the tax return even if you sold your principle residence. Failing to report could result in hefty penalties.

  1. Converting Income to Capital Gains

If you’re incorporated, you may have converted what would otherwise have been taxed as salary or dividends into capital gains. This process usually involved selling of some shares to another company related to the shareholder. The government proposes to close these opportunities by tweaking section 84.1 of our tax law, which was intended to prevent this type of planning.

 

Tax credits such as children’s fitness tax credit, arts tax credit, public transit credit are being reduced or completely discontinued. As changes to tax are becoming more complicated and changing every year it is more important than ever to sit down with a financial advisor or tax expert to plan to reduce the amount of tax you’ll need to pay at tax time. Tax planning is just as important as tax preparation and savings tools such as a TFSA (tax free savings account) is just one of the things that could save you money in the end.

 

The best time to plan your taxes is now. With RRSP season just around the corner take this opportunity to speak with your financial advisor about making a contribution. And remember, to be eligible for deduction in the previous tax year, your RRSP contribution must be made before the end of the first 60 days of the current year. This year, the RRSP contribution deadline for the 2017 tax year is March 1st, 2018. The annual contribution limit is 18% of your earned income for the previous year to a maximum of $26,010.

 

Finally, don’t wait until March or April to figure out how you’re going to get the biggest tax refund ever or how you’re going to minimize the amount of taxes you owe.  Get ahead of the game by having a year round approach to the amount of tax you plan to save so come next holiday season you can just sit back and enjoy the holidays.

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Stay On Track of Holiday Spending

With only 8 weeks left for holiday gift buying, shoppers everywhere are flooding the stores looking for that perfect gift. If you’re like me, you start each holiday season with the best intentions by making a list that you swear you’re going to stick to. Procrastination and busy schedules however keep us from sticking to our holiday shopping goals and we resort to last minute purchases that push our budgets over the edge.  If you’ve created a budget for yourself throughout the year and want to stay on track of your holiday spending you can do it with a little planning and these five helpful tips:

 

  1. SETTING LIMITS ON HOLIDAY SPENDING

 

Yes – we all want to buy our friends and family gifts they’ll really love but that doesn’t mean breaking the bank. Give your credit cards and bank balance a break by setting a limit to what you can spend. Create a mini holiday budget based on your household budget.  If you don’t have a budget in place,  apps like Mint and You Need A Budget are a great place to get started and help you determine what you can afford.

 

  1. MAKE A LIST AND CHECK IT TWICE

 

Yes – the mail carrier is a nice guy cause and the security guard at work always has a smile for you but that doesn’t mean they have to be on your gift buying list.  You’re not Santa Claus.  You have a finite budget and can only really afford to buy gifts for those individuals you’re really close to.  If you have more than 7 names on your list do some editing and cut it down to 5. You can still give to other people in your life but it doesn’t have to cost a lot of money. With a little imagination you can show people you care about them without breaking the bank.  The holidays are about spending time with friends and family not about spending.

 

  1. SPEND BASED ON WHAT YOU CAN AFFORD

 

We all have that wealthy aunt or sibling who outdoes everyone every year with their gift giving. But just because they are in a financial position to purchase expensive gifts doesn’t mean you are. Keep your shopping to items you can afford and that fit your own finances. After all, it isn’t the gift that matters but the thought. Keeping your cash flow positive at this time of the year will have it’s rewards in the new year when the credit card bills start to roll in.

 

  1. STARTING EARLY WILL ELIMINATE IMPULSE BUYS

 

Search the internet for sales and coupons on items you’re looking to buy.  Online shopping is a great way to avoid the last minute shopping craze in crowded malls and you can do it from anywhere and at anytime. Before you shop in local stores, comb through the coupons you received in your mailbox before hitting the mall. These tactics will not only help you stay on track but will make gift buying easier.

 

  1. GIFT OUTSIDE THE BOX

 

It’s not always about the size of the gift box or the price on the tag. Sometimes the best gift of all is your time. Think about all the people you’ve neglected over the year. Not because you want to but because you’re too busy or you don’t live close by. Spending time with friends and family in a meaningful way goes well beyond the holiday moment. A heartfelt gesture to your nana in the nursing home is a gift that will reward the gift giver and the recipient. Volunteering at a soup kitchen or homeless shelter are just a couple of ways you can make a difference without spending a cent.

 

SPENDING TIME – NOT MONEY

Lastly, remember that the holidays are a time to rejoice in the friends and family we have with us. You want to enjoy this time of the year not stress over how you’ll manage to pay your credit card bill when it arrives. Keep to your budget, give yourself time, get organized and you’ll be in a great financial position to start off the new year.

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Pensions: To Commute or Not Commute? That Is The Question.

If you’re lucky enough to have a company pension – something few of us can claim to own – then you may already be aware of the options you have when you decide to leave your employer.  Whether you leave your employer at retirement or you terminate your employment for other reasons, if you have been paying into a company pension there are some choices you may be faced with.

Do you take a lump sum payment or a monthly payment?  Firstly, it’s important to keep in mind that every pension has its own set of rules and is subject to provincial or federal regulations, which determine when or if an employee is able to take the lump sum.  Equally important is that taxes are extremely high when commuting a pension of a high value.  While a large portion can be transferred tax free to a Locked In Retirement Account (LIRA) it is still advisable to do your homework before making a decision on whether to commute or not commute the value of your pension.

WEALTHplan has put together a list of 6 things to keep in mind when deciding to commute or not commute your pension:

 

  1. SHORT TERM INTEREST RATES:

Taking the lump sum, or commuted value, looks even more attractive when short-term interest rates and bond yields are low, as they are now. The lower they are, the higher the payout will be. However, a large portion of the lump sum pay out will be taken by taxes in the year of receipt. While a large portion can be transferred tax free to a locked in retirement account it is best to go over the numbers with a certified financial planner specializing in tax who will be able to advise you and tell you exactly what you will be left with.

  1. INVESTING YOUR LEFTOVER PORTION:

Along with your financial planner you can take the left over portion that is taxable and invest it into an RRSP.  The thinking here is that if you’ve taken the lump sum payout you are most likely between the ages of 50 and 55 – when most pensions are available for commuting to employees. If you’re planning on working somewhere else or have other income available to you it makes the most sense to invest the commuted value of your pension into an RRSP until you take full retirement.

  1. LOCKED IN RETIREMENT ACCOUNT:

Despite the downsides of commuting your pension (you need to take it by a certain age & the amount that is taxed) you may feel you’d rather invest your pension on your own or with your financial planner. A Locked-In Retirement Account (LIRA) is an option that is appealing because it gives you investment choices and the money is held there until retirement.

  1. OTHER LIFE CHANGING DECISIONS:

Sometimes the decision to take the commuted value of your pension goes beyond tax and investment considerations.  You may decide you want to leave some sort of legacy income for your spouse or kids that is guaranteed.  Or you’ve decided to leave your employment, take your commuted pension and pay down your mortgage. The temptation to become debt-free is enticing and the opportunity of the lump sum payout is an option that some employees want to consider.

  1. AT WHAT AGE CAN YOU COMMUTE YOUR PENSION?

Most often than not, employees with pension plans are not aware of the restrictions associated with their pensions.  The decision to retire early and take the lump sum value by age 50 or 55 is not a decision to be made months before the deadline date.  Employees should be aware of their options years before their early retirement date comes up to be prepared to make a proper decision when the time arrives.

6. DO YOUR RESEARCH AND SPEAK WITH A FINANCIAL PLANNER

Lastly, the temptation to take a large sum of money that is available to you is tempting. Do your research by speaking with your Human Resources Department regarding any restrictions associated with commuting your pension.  Once you have all the facts go over the numbers with your financial planner who will set forth a plan based on your goals and objectives.