News Archives - Page 5 of 28

Three tips to help retirees minimize their taxes and maximize their cash flow

When planning for your retirement, not only do you need to know how much to save but how your funds could be taxed. Unfortunately, not a lot of people know how their retirement funds are taxed. If you work part-time or full-time after retiring, there are tax credits you can claim. When you are working, it’s important to utilize the proper investment accounts based on your cash flow at the time. You can also save on taxes by pension splitting income with your spouse (if they are in a lower tax bracket). This will have the added benefit of keep certain government benefits.

“Don’t miss out on opportunities to claim tax credits or implement strategies that might save thousands of tax dollars annually.”

Selling real estate? The CRA is watching

If Canadian residents are in the process of selling real estate, they must now take extra care to make sure the sale is properly reported to the Canada Revenue Agency. There are three different categories of real estate including (1) selling a property that has been your primary residence, (2) property that was purchased to make improvements and flip, and (3) property that was purchased to rent. The sale of your primary residence may or may not be subject to capital gains tax. Houses purchased to flip can be fully taxable even if you lived in the property while making improvements if your original intent was to sell it for a profit. The income from rental properties is taxable income, but the sale of rental property for a profit may be subject to a partial capital gains tax.

“Since 2016, all property sales must be reported to the CRA, including that of a principal residence. When you sell property, the transaction must be correctly defined and reported for tax purposes. Failure to do so may result in unwanted audits, potential back taxes, and related interest and penalties.“

How to tell if you’re over-using credit—and get it under control

According to the most recent report from Statistics Canada, the average Canadian currently owes over $23,000 in non-mortgage debt, and that even elders age 65+ owe about $16,000. It appears we have become too comfortable making minimum payments on credit cards and other forms of credit. One way for Canadians to determine if they’re at risk for financial problemsis to go “cold turkey” by putting all your credit cards away & stop using credit for a period of 3 months. After all, you can hide your true financial state for 1 month by using up what’s in the freezer or temporarily adjusting the way you live. But a 3-month stretch is a truer test of your ability to just use cash or a debit card. Perfect your 3-month test by taking into account seasonal expenses like school clothes or car maintenance to determine if you really can cover living expenses without using credit. Adding up expenses and dividing by 12 can enable you to set aside the amount of income you need each month. Remember to allow time to get out of debt, and to take a realistic approach to debt solutions.

“Remember that it took time to get into debt, so it will take time to get out of debt”

Running afoul of the CRA on RRSP withdrawals can be a costly mistake

RRSP accounts seem great when you make a deposit and taxes are deducted from your income to match your contribution. The problem is, when you withdraw funds, the amounted is added to your total income for the year and taxed accordingly. In anticipation of taxes owed, financial institutions will often hold onto some of the money withdrawn and send it directly to the CRA. Keep in mind however, that the money withheld may not be enough and you can be fined a hefty amount for lack of payment.

“The truth is, it’s actually quite simple: any funds withdrawn from your RRSP (or its successor, a RRIF) are included in your income.”

French plan to scan social media for tax fraud causes alarm

A new proposal by a French government official will allow the government to scan social media as well as commerce sites such as Ebay. It is so the government can determine if residents are actually living in the country more than they claim at tax time, in addition to what they are buying. If it appears that they are deceitful in reporting residence or income, when compared to the estimates of luxury goods and homes posted on their social media pages, then they could be assessed for more taxes than what they reported.

“France’s data protection watchdog has urged caution over plans to allow authorities to monitor individuals’ social media posts and purchasing activity on websites such as eBay in order to identify those committing tax fraud.”

How to get the best mortgage rate in Calgary

Currently, supply is larger than demand in the Calgary housing market. This is good news for anyone shopping for a new home because prices have been dropping as a result. Another advantage to purchasing in Calgary is that houses tend to be newly built. But buyers must also understand how this affects the Calgary mortgage market. For instance, since prices are falling, your may not be approved for the amount you applied for. Mortgages are secured by a properties value. Calgary’s vast land has lead to people building new construction homes. But if construction takes a while, one may lose their locked in rate. Buyers should consider a longer rate hold. Being aware of these nuances can save you a lot of money.

“Don’t rush into the first mortgage you’re offered. For all home buyers, probably the number-one tip is to shop around.”

The OAS clawback ceiling isn’t as firm as you thought — and here’s how you can take advantage

There is a ceiling that many retirees reach when generating income from OAS accounts that can reach up to fifteen cents on the dollar in “clawback” or money owed in returns. There are ways however, that even those who have reached well above the ceiling can save some money. You could restructure your income flows or even create a larger ceiling with two withdrawals that are carefully timed. Also, if you don’t touch the money and want to leave it to your heirs, an estate planning option could give your heirs rights to the money if they apply for what was not withdrawn up to a year before you die.

“But what I never knew, and I’m sure many affluent Canadians might not realize, is that the OAS ceiling effectively rises for each year you choose to defer the commencement of benefits”

Why saving too much for retirement is just as risky as saving too little

The concept of retirement planning is to ensure that when you’re not working, and the flow of money coming in slows or stops entirely, your life doesn’t stop as well. Many focus on reducing, or even eliminating, the financial risk that might threaten their retirement portfolio. And while safeguarding your end of life nest egg is a laudable goal; it can be a bit too much of a good thing. Over saving, living so frugally that you might as well not even have money, can be just as bad as not planning at all for your golden years. Financial planners advise finding a balance, rather than an extreme.

“Only 20 per cent of 65-year old Canadians will live for 30 years — and that means their money will far outlive them.”

32% of Canadians don’t know difference between TFSA and RRSP, survey shows – BNNBloomberg.ca

When trying to figure out their financial planning for retirement, 69 percent of Canadians say they would choose a TFSA over an RRSP. However, there’s a problem. About a third of all Canadians don’t have the financial knowledge to be able to distinguish between them. A TFSA is a savings account where investment income is tax-free. Whereas, an RRSP is a tax-deferred retirement savings account with contributions that are tax deductible.

“Most Canadians prefer to tuck their money into a tax-free savings account over a registered retirement savings plan, but nearly one-third of respondents don’t know the difference between the two.”

Loan interest is still deductible on your tax return, even if your investment or business goes belly up

There is a little known rule in Canadian Law that allows one to deduct loan interest even if the entity that received the loan money goes bankrupt or doesn’t exist anymore. This could be either an investment or a business. This rule has been part of the Income Tax Act since 1994. The rule essentially allows one to continue to write off interest payments well after the underlying business has ceased to exist. In a recent case, a judge referred to the loss of source rule, which stated that the deductible interest expenses from outstanding borrowed money when a business ceases operating “shall be deemed to be used by the taxpayer at any subsequent time for the purpose of earning income from the business.”

“Little-known ‘loss of source’ rule permits you to keep writing off previously deductible interest expenses after the source is gone.”