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The CRA’s new field guide on battling identity theft can help you protect yourself

Identify theft isn’t as simple as stolen credit cards anymore. In the Information Age, having your identity stolen can lead to false bank accounts, brand new lines of credit being opened in your name, or even fraudulent tax refunds being created and submitted that leave you on the hook with the Canada Revenue Agency. Fortunately, the CRA is aware of the issue, and has published some guidelines to help Canadians protect themselves from fiscal peril. Staying on top of your online and personal details, will help ensure you don’t get left holding the bill.

“The truth is, identity theft is more common today than ever. The taxman recognizes the problem, and so the Canada Revenue Agency (CRA) has published a guide on how to protect yourself.”

Canada: Amending Your Tax Return – Careful, Now

Sometimes in the rush to file an annual tax return mistakes or accidental omissions occur. On the other hand, businesses or individuals may receive a Notice of Reassessment, which requires additional work before your previous year’s tax return is finished. Depending on which of these two groups you’re in, there are different ways to proceed. If you receive an unfavourable Notice of Assessment, then review it to see why it has been changed. The first place to look is at the Explanation of Changes because it may be a simple clerical error. Then, review the Summary section. Once you understand the reason, then you can proceed.

Key Takeaways:

If you need to amend a return, the CRA prefers that you write to the Tax Centre where you filed your return. Either use form T1-ADJ with an explanation and any additional material, or make the changes to your return through CRA’s electronic service.
If you received a Notice of Assessment, then there is a time limit to object of 90 days from its mailing date or within one year of the due date of the T1 return.
It’s often best to contact the CRA first, since depending on the reason, it may be cleared up on the spot. Filing a Notice of Objection is then the next step.

“If you receive an unfavourable Notice of Assessment, the first thing you must do is find out why CanRev has disallowed a claim or otherwise increased your taxes. If there’s a difference between your figures and CanRev’s, it’s quite possible that no one has even looked at your return beyond a keypunching clerk. You have a legal right to appeal your case. More importantly, if you do this properly, you stand a very good chance of winning.”

Personal Investor: Why owning a home is a great retirement investment – BNNBloomberg.ca

Recently, Canada Mortgage and Housing Corporation President and CEO told Canadians they should stop using homeownership as a vehicle for savings, warning about the risks of return on their investment. However, for most Canadians, home ownership should still be a part of their retirement savings. One reason is that property values generally appreciate over time and are at the very least a good way to store value. Plus, gains in a principal residence are never taxed. People can use their home as collateral to gain financing. Finally, a home saves people from paying rent or can generate rental income.

“The most prudent retirement savings plan includes homeownership as part of an investment portfolio.”

Personal Investor: Why fixed income has become less safe – BNNBloomberg.ca

Savers may want to rethink how they view the fixed income portion of their portfolios after the Bank of Canada issues a warning. Some corporate debt may carry an additional risk as a result of the business carrying higher debt levels. The Bank of Canada mentioned companies in the commodities sector who are borrowing heavily due to low resource prices. The extra debt comes with a greater risk that investors should be aware of when choosing their portfolio mix and investments.

“Investors who think their fixed income holdings are the safe part of their portfolios might want to think again.”

How your tax bracket decides whether a TFSA or RRSP contribution is best

A person’s tax bracket before and after retirement can help you decide whether you would benefit more from putting your money into an RRSP or TFSA account. By using this as a basis for your financial planning, it will become more obvious how to limit the taxes you pay. For instance, RRSP accounts are better investments for those who make more now, but require and plan to live on less after retiring.

Key Takeaways:

The large majority of Canadians are in either the first (up to $47,630) or second bracket (i.e., most Canadians make less than $95,000 a year).
From an after-tax perspective, most people would likely be indifferent between an RRSP and a TFSA, because most people are in the same tax bracket when working and when retired.
Those who would benefit from the ‘tax bracket arbitrage’ by using an RRSP are those who earn less in retirement while maintaining a similar standard of living due to having put their children through school, paid off the mortgage and so forth.

“While many people have no strong opinion when choosing between RRSPs and TFSAs, there is a clear advantage to RRSPs for those people who have more than modest incomes that are likely to be a fair bit lower in retirement. For most people earning over $47,000 a year, therefore, RRSPs are likely to be the better option.”

Bank of Canada lowers qualifying rate used in mortgage stress tests – BNNBloomberg.ca

For the first time in three years, the Bank of Canada has lowered the qualifying rate. This is the rate used in the mortgage stress test to determine if someone qualifies for an insured and also for uninsured mortgages. The move is meant to act as a stimulus for the housing market, since it increases demand by creating more qualified homeowners. Home sales have been week in Canada for the last year, so the Bank of Canada could be looking to boost the marketplace.

“The Bank of Canada has lowered the rate used by mortgage stress tests to determine whether would-be homeowners can qualify, marking the first drop in three years.”

Personal Investor: TFSAs not just for the wealthy – BNNBloomberg.ca

Recently, wealthier Canadians have been the majority investors in TFSAs, trying to avoid tax pay outs at retirement. This is not why these investment plans were created. Canadians who are not wealthy often view TFSAs as short-term accounts but should really be utilized for retirement savings. A new report by the Institute for Research on Public Policy recommends that more low income investors be educated on the benefits of these accounts as well as an initiative for employers to enroll employees in these accounts, as opposed to RRSPs, based on their incomes.

“The Institute for Research on Public Policy report argues that the TFSA needs to return to its roots: a savings tool for average Canadians”

How to make the right pension decision when longevity is so variable

With the average life expectancy ranging from the mid to late eighties, yet, in reality, could be much more or less, Canadians planning to retire have to make decisions about where their retirement income will come from. You need to figure out where you stand to lose money on your household balance sheet should you or your spouse lives longer than expected. You need to know how much cash flow you will have and plan your budget. Having a financial plan in place for any situation will take away the stress and uncertainty.

Key Takeaways:

The average Canadian woman lives 21.9 years in retirement, and the Canadian average man lives 18.9 years in retirement.
To help reduce the risk associated with using the average life expectancy in financial planning the 25% probability of survival is used, not the 50% probability provided by average life expectancy – as “forecasting a longer life expectancy offers protection from future improvements in mortality and accounts for the greatest financial risk to an individual: longevity risk.”
When you shift your focus from projections and probabilities to risks, dependencies, and contingencies, then the goal of financial planning is sometimes not be to maximize the funds paid out of a pension, but rather to reduce the risk on your household balance sheet.

“The real value of financial planning [is] it helps reduce uncertainty—not by making highly exact predictions, but by identifying financial vulnerabilities and dependencies, and ways to effectively address them.”

Imagine Canada as a tax haven for Americans

With the current American political environment, wealthy Americans may be fearful of a democratic party takeover that would likely result in higher taxes. The only way to dodge a higher tax rate is to leave the country. With few nearby options available, one of the only viable options may be moving to Canada. While the American perception is that Canada is a quasi-socialist economy with high taxes, Canada’s top federal income tax rate is 33 percent — lower than the equivalent rate in the U.S. It may seem unlikely for Canada to be a tax haven, and it remains to be seen how those affected would respond to a tax increase.

“Taxes on rich Americans are probably going up if Democrats win both the presidency and Congress anytime soon. If and when taxes are raised, an interesting question is how those affected will respond. “

Canada’s actuaries urge governments to raise retirement age

As the average age of retiring workers is increasing, there is a call for the payout from retirement income programs to come at a later age than 65. If Canadians work longer, they can save up for a larger retirement income. Actuaries are suggesting that the retirement age be raised to 67 for pension plan payouts and Old age Security payout pushed to age 67 to 75 before benefits are paid.

“Canadians are living longer than ever, and many are choosing to work beyond age 65. It makes sense to update our country’s retirement income programs to reflect this fact.”