The more organized you are, the less stress you will feel. Start
thinking about how you can make next year’s tax season easier with these tips to
keep your finances in order.
1. Review Tax Filings from Previous Years
For most people, the changes from one tax year to the next are relatively slight. Previous tax returns are great reminders of areas that can easily be overlooked, such as interest or dividends, capital loss carry-forward balances, and infrequently used deductions. If there were any problem areas last year that were extra complicated, try to brainstorm how you can simplify the process and better prepare yourself for this next tax season. This could mean being better organized this year, filing earlier in the year, or even deciding to get professional tax help instead of doing taxes yourself.
2. Keep All Your Tax Information Together
Have you ever gone through a drawer and found a receipt from several years ago but cannot remember if you deducted it or not? Keeping your returns and documents together year to year will help you remember what items you have deducted, what you need to track and what you don’t. Start a new folder or filing system now for 2019 and keep everything in one place. The most important thing is to create a system that works for you. Tracking documents can be the most stressful part of tax season. Some items most commonly tracked are: charitable donations, medical expenses and business expenses.
3. Save and Track Business Expenses
In general, if you are running a side business, small
business or start-up, and are trying to claim certain items as business
expenses during the year, you are going to have to justify these expenses. Save
or track, any items you think you might want to claim as a business expense. You
may not end up claiming them, but it is easier to discard receipts and
documentation than wish you had them.
Tax software can be your friend. If you have software like QuickBooks or Zero you can put a system in place to track expenses, all those small missed deductions can add up. If your business can justify hiring a bookkeeper or accountant, consider outsourcing the burden of taxes and the stress of month-to-month tracking so you can focus on running your business.
4. Go Electronic
Many of your monthly bills or receipts are now e-statements
or electronic PDFs. Start an electronic folder to track bills or monthly statements
for credit cards, bank accounts, charitable donations and expenses. Many companies provide an option to have the receipt sent to you
electronically after a purchase. If that option is not available, take a photo
of the receipt with your phone and save it your electronic folder. Be sure to back up your files in the
case of a crash or accidental deletion and to add extra protection password
protect your folder or individual files.
5. Prepare Yourself for Any Taxes You May Owe or Plan
for Your Refund
Not everyone will get a tax refund. Many will
actually owe money in taxes after filing. If you will likely owe on your
taxes, take steps and budget to ensure you can pay the amount owed. You don’t
want to be caught off guard when filing and be unprepared to pay the taxes owed.
Depending on your finances, what you do with
your refund could change each year. Is there a debt you need to pay off? Is
there a vacation you want to use your refund for? Do you want to save your
refund money for an emergency? Do you want to deposit to your RRSP or TFSA? Take
a look at your finances or consult with your financial advisor when determining
what your refund should go towards.
Feel free to connect with us to discuss your tax
On Tuesday, March 19, 2019, Finance
Minister Bill Morneau presented the Government of Canada’s 2019 budget. Here
are some highlights of these proposals for individuals. Please note, these are
not yet law.
Employee Stock Options: The current
tax rules provide preferential personal tax treatment to holders of employee
stock options in the form of a stock option deduction which, if available, can
effectively tax the stock option benefit at a personal tax rate similar to a
Budget 2019 proposes to limit the tax-preferred treatment
of employee stock options to annual grants of $200,000, based on the fair
market value of the underlying shares at the time the options are granted. This
limit will only apply to stock options issued to employees of large,
long-established, mature firms, and is not intended to apply start-ups and
rapidly growing Canadian businesses.
It should be noted draft legislation, including
definitions of these terms, has yet to be released. Stock option benefits
realized on options in excess of this limit would not be eligible for the stock
option deduction and will be fully taxable at the employee’s personal tax rate.
Annuities for Registered Plans: To provide
greater flexibility for retirement planning, the 2019 budget is proposing to
permit two new types of annuities for certain registered plans: Advanced Life
Deferred Annuities (ALDA) and Variable Payment Life Annuities (VPLA).
Advanced Life Deferred Annuities will be permitted under a Registered
Retirement Savings Plan (RRSP), Registered Retirement Income Fund (RRIF), Deferred
Profit-Sharing Plan (DPSP), Pooled Registered Pension Plan (PRPP) and defined contribution
Registered Pension Plan (RPP); and
Variable Payment Life Annuities will be permitted under a PRPP and
defined contribution RPP.
With the creation of an Advanced Life Deferred Annuity
(ALDA) under an RRSP, RRIF, DPSP, PRPP or defined contribution registered
pension plan, life annuity payments under the ALDA can be deferred until the
end of the year in which the annuitant turns 85, which is an extension
from the existing age 71 requirement.
measures will apply to the 2020 and subsequent taxation years.
Home Buyers Plan:The 2019 proposed budget proposes measures that might
help first time home buyers an ability to better manage buying a home and
ongoing costs. The budget proposes to increase the withdrawal limit from
$25,000 to $35,000 for 2019 and subsequent years. As a result, a couple will
potentially be able to withdraw $70,000 from their RRSPs to purchase or build
their first home. The changes also propose other measures to protect home
ownership after the breakdown of a marriage or common-law partnership, couples
who separate or divorce no longer have to be a “first-time home buyer” to
First Time Home Buyer Incentive: The proposed budget recommends an incentive for
first-time home buyers an option with The Canada Mortgage and Housing
Corporation (CMHC) to help finance a portion of their home purchase through a
shared equity mortgage with CMHC, with maximum limits of 10% for a newly
constructed home or 5% for an existing home for household annual income of less
than $120,000. This may reduce the mortgage and borrowing costs for first time
buyers. Additional details on any required repayments and the plan are still to
Individual Pension Plans: Individual pension plans (“IPPs”) are registered plans
which provide retirement benefits to owner-managers in respect of their
employment. If an individual terminates membership in a defined benefit
registered pension plan, there’s a tax-deferred rollover available. The
pension’s commuted value is transferable to another employer-sponsored defined
benefit plan or up to 50 per cent of the commuted value can be transferred to an
RRSP or similar registered plan.
Planning is being undertaken that seeks to
circumvent these prescribed transfer limits. This planning is affected by
establishing an IPP sponsored by a newly incorporated private corporation
controlled by an individual who has terminated employment with their former
employer. The individual then transfers the commuted value of their pension
entitlement from the former employer’s defined benefit plan to the new IPP.
This planning seeks to obtain a 100-per-cent transfer of assets to the new IPP
instead of the restricted transfer of assets to the individual’s registered
retirement savings plan.
To prevent this type of planning, the budget
proposes to prevent tax-deferred transfers of assets from a former employer’s
defined benefit plan to an IPP. The proposal would prevent an IPP from
providing retirement benefits in respect of past years of employment that were
pensionable service under a defined benefit plan of another employer. Any
assets transferred from a former employer’s defined benefit plan to an IPP that
relate to benefits provided in respect of prohibited service will be considered
to be a non-qualifying transfer that is required to be included in the income
of the member for income tax purposes.
These measures apply to pensionable service credited
under an IPP on or after March 2019.
Canada Training Credit (CTC): One of the main reasons, according to the OECD
Survey of Adult skills, why people don’t upgrade or learn new skills is that
the expense of getting additional training or education is due to the cost. The
budget proposes a new refundable tax credit intended to cover up to half of
eligible tuition and fees associated with postsecondary or occupational-skills
training. Eligible working adults between the ages of 25 and 65 will accumulate
$250 each year in a notional account, which can be claimed in the year eligible
training expenses are incurred. The CTC
accumulates automatically each year up to a lifetime limit of $5000, and is
designed to offset training costs at colleges, universities and other eligible
institutions. In order to be eligible for the CTC in a year an individual must
meet certain criteria.
Canada Student Loans – Lower Interest Rate: The budget
proposes a significant reduction in the interest rate charged on Canada Student
Loans and Canada Apprentice Loans. Starting in 2019-2020, the fixed rate will
be reduced from prime plus 5% to prime plus 2% and the popular variable
interest rate will drop from prime plus 2.5% to only prime.
Currently there is a six-month grace period after
graduation, where the new graduate does not have to make any payments, but
interest still accrues. The budget proposes to eliminate interest charges on
student debt during this six-month grace period.
Tax Credit for Digital Subscriptions: The Budget proposes a 15%
non-refundable tax credit for eligible digital news subscriptions up to an
annual maximum of $500 in costs for an annual maximum credit if $75. This includes
combined digital and newsprint subscriptions for amounts paid after 2019 and
Medical Expense Tax Credit: The budget
proposes to expand the range of cannabis products eligible for the medical
expense tax credit, applicable for expenses incurred on or after October 17,
Guaranteed Income Supplement: The budget provides enhancements to the Guaranteed Income
Supplement (GIS), including making self-employment income eligible for the earnings
exemption; and increasing the exemption of annual employment or self-employment
income for GIS or allowance recipients and their spouse by:
Increasing the full exemption from
$3,500 to $5,000 per year for both the recipient and their spouse; and
Introducing a new exemption of 50%
of an additional $10,000, beyond the above-mentioned $5,000 exemption for both
the recipient and spouse.
Registered Disability Savings Plans (RDSPs): A
Registered Disability Savings Plan (RDSP) is intended to assist with the
long-term savings and financial security of individuals eligible for the
disability tax credit (DTC). Savings in these plans are supplemented with
Canada Disability Savings Grants and Canada Disability Savings Bonds.
Currently, once an individual beneficiary of an RDSP is
no longer eligible for the DTC, they cannot make additional contributions to
the plan, and no government grants or bonds will be paid into the RDSP. In
addition, the plan must be closed by the end of the year following the first
full year that the individual is no longer eligible for the DTC, unless a
medical practitioner certifies that it’s likely the beneficiary will once again
qualify for the DTC.
Closure of the plan will result in repayment of government
grants and bonds paid into the plan within the preceding 10-year period, the
“assistance holdback”. The budget is proposing to remove the two-year time
limit on the period that an RDSP can remain open after the beneficiary is no
longer eligible for the DTC and eliminates the requirement for medical
As a transitional measure, financial institutions will
not be required to close an RDSP on or after Budget Day and before 2021 simply
because the beneficiary ceased to be DTC-eligible.
detailed rules and criteria proposed in the 2019 Budget for the above items and
all other proposed changes that can be accessed at www.budget.gc.ca.
Feel free to connect with us for
clarity or to understand how some of the proposed changes may impact you.