2023 Personal Year-End Tax Tips

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The end of 2023 is quickly approaching – which means it’s time to get your paperwork in order so you’re ready when it comes time to file your taxes!

In this article, we’ve covered five different major types of 2023 personal tax tips:

  • Investment Considerations

  • Individuals

  • Families

  • Retirees

  • Students

Investment Considerations

Tax-Free Savings Account (TFSA)-You can contribute up to a maximum of $6,500 for 2023. You can carry forward unused contribution room indefinitely. The maximum amount you’re allowed to make in TFSA contributions is $88,000 (including 2023) if you have been at least 18 years old and resident in Canada since 2009.

Registered Retirement Savings Plan (RRSP) – For the 2023 tax year, you have until February 29, 2024, to contribute to your Registered Retirement Savings Plan (RRSP) or a spousal RRSP. However, contributing earlier can benefit you more due to tax-deferred growth. Your deduction limit for 2023 is 18% of your 2022 income, up to $30,780, but this will reduce if you have pension adjustments. Don’t forget, any unused contribution room from previous years or pension adjustment reversals can increase your limit.

Also, you can deduct contributions on your 2023 income if they are made within the first 60 days of 2024. It’s possible to defer these deductions to a later year if that suits your financial strategy better. To optimize your RRSP, consider holding investments that have the potential for growth outside of your RRSP to take advantage of lower taxes on capital gains and dividends. Within your RRSP, keep investments that generate regular interest income. If you’re unsure about the best investment strategy for your RRSP, our team is ready to provide expert advice to help you maximize your retirement savings.

Do you expect to have any capital losses? If you have capital losses, sell securities with accrued losses before year end to offset capital gains realized in the current or previous three years. You must first deduct them against your capital gains in the current year. You can carry back any excess capital losses for up to three years or forward indefinitely. 

Interest Deductibility – If possible, repay the debt that has non-deductible interest before other debt (or debt that has interest qualifying for a non-refundable credit, i.e. interest on student loans). Borrow for investment or business purposes and use cash for personal purchases. You can still deduct interest on investment loans if you sell an investment at a loss and reinvest the proceeds from the sale in a new investment.

Tax Loss Selling- Tax-loss selling is when you sell investments that have lost value by the end of the year from accounts that are not tax-deferred. This helps to offset any profits you made from other investments. If your losses are greater than your profits, you can use these extra losses to reduce taxes on profits from the last three years or save them to lower taxes on future profits.

For your losses in 2023 (or the past three years) to count, you need to complete the sale by December 27, 2023. This is because it needs to be settled by the end of the year, and December 30th and 31st are on a weekend in 2023.

If you sell an investment at a loss and plan to buy it again soon, you should know about the “superficial loss” rule. This rule applies if you sell something for a loss and buy it back within 30 days before or after selling it. It also applies if someone close to you, like your spouse or partner, a company they or you control, or a trust where you or they are the main beneficiaries (like your RRSP or TFSA), buys it within 30 days and still has it after 30 days. If this happens, you can’t use that loss to reduce your taxes right away. Instead, the loss gets added to the cost of the investment you bought back. You’ll only get the tax benefit from this loss when you sell this investment later.

When it comes to transferring investments, you might think about moving one with a loss into your RRSP or TFSA to count the loss without really selling it. But the tax rules don’t allow this, and there are big penalties for swapping an investment from a regular account to a registered account like an RRSP or TFSA.

To avoid these issues, it’s better to sell the investment that’s lost value and, if you have room, put the money from the sale into your RRSP or TFSA. Then, if you want, your RRSP or TFSA can buy the investment again after waiting for 30 days since the initial sale. This way, you avoid the superficial loss rule.


Individuals

The following list may seem like a lot, but it’s unlikely every single tip will apply to you. It’s essential to make sure you aren’t paying taxes unnecessarily.

COVID-19 federal benefits – If you return any amounts you received from COVID-19 benefits before the year 2023, you have the option to deduct the amount you paid back from your income for the year when you originally received the benefit, rather than the year in which you repay it.

Income Timing – If your marginal personal tax rate is lower in 2024 than in 2023, defer the receipt of certain employment income; if your marginal personal tax rate is higher in 2024 than in 2023, accelerate.

Medical expenses – If you have eligible medical expenses that weren’t paid for by either a provincial or private plan, you can claim them on your tax return. You can even deduct premiums you pay for private coverage. Either spouse can claim qualified medical expenses for themselves and their dependent children in a 12-month period, but it’s generally better for the spouse with the lower income to do so.

Charitable donations – Tax credits for donations are two-tiered, with a more considerable credit available for donations over $200. You and your spouse can pool your donation receipts and carry donations forward donations for up to five years. If you donate items like stocks or mutual funds directly to a charity, you will be eligible for a tax receipt for the fair market value, and the capital gains tax does not apply.

Moving expenses – If you’ve moved to be closer to school or a place of work, you may be able to deduct moving expenses against eligible income. You must have moved a minimum of 40 km.

Alternative Minimum Tax (AMT)- The AMT framework is a taxation system that sets a minimum amount of tax for individuals who utilize specific tax deductions, exemptions, or credits to substantially reduce their tax liabilities to exceedingly low levels. With AMT, there’s a parallel tax calculation that doesn’t allow as many deductions, exemptions, or credits as the regular way of calculating taxes. If the tax amount computed under the AMT system exceeds the tax liability determined under the regular tax system, the surplus amount becomes payable as AMT for the year.

Recent government proposals have outlined forthcoming adjustments to the AMT system, set to take effect in 2024. These proposed modifications encompass elevating the AMT tax rate, enhancing the AMT exemption threshold, and expanding the AMT tax base by constraining specific exemptions, deductions, and credits that serve to reduce overall tax obligations. 

For individuals whose taxable income surpasses approximately $173,000, and who derive income subject to lower tax rates than standard income, or those who benefit from deductions or credits that mitigate their tax liabilities (such as capital gains, stock options, Canadian dividends, unused non-capital losses from preceding years, or non-refundable tax credits like the donation tax credit), it is anticipated that their AMT liabilities in 2024 may exceed those incurred in 2023.

To navigate these impending changes effectively and make financial decisions, it is advisable for individuals to seek counsel from a tax professional. 


Families

Childcare Expenses – If you paid someone to take care of your child so you or your spouse could attend school or work, then you can deduct those expenses. A variety of childcare options qualify for this deduction, including boarding school, camp, daycare, and even paying a relative over 18 for babysitting. Be sure to get all your receipts and have the spouse with the lower net income claim the childcare expenses. In addition, some provinces offer additional childcare tax credits on top of the federal ones.

Caregiver – If you are a caregiver, claim the available federal and provincial/territorial tax credits.

Children’s fitness, arts and wellness tax credits – If your child is enrolled in an eligible fitness or arts program, you may claim a provincial or territorial tax credit for fitness and arts programs.

Estate planning arrangements

  • Periodic Review: It is imperative to conduct an annual review of your estate planning arrangements to verify that they are in alignment with your objectives and compliant with current tax regulations.

  • Probate Fee Mitigation: Deliberate strategies should be explored to minimize probate fees. 

  • Will Examination: Regularly reviewing your will is crucial to ensure it remains valid and aligns with your evolving life and estate planning requirements.

Registered Education Savings Plan (RESP) – can be a great way to save for a child’s future education. The Canadian Education Savings Grant (CESG) is only available on the first $2,500 of contributions you make each year per child (to a maximum of $500, with a lifetime maximum of $7,200.) If you have any unused CESG amounts for the current year, you can carry them forward. If the recipient of the RESP is now 16 or 17, they can only receive the CESG if a) at least $2,000 has already been contributed to the RESP and b) a minimum contribution of $100 was made to the RESP in any of the four previous years.

Registered Disability Savings Plan (RDSP) – If you have an RDSP open for yourself or an eligible family member, you may be able to get both the Canada Disability Savings Grant (CDSG) and the Canada Disability Savings Bond (CDSB) paid into the RDSP. The CDSB is based on the beneficiary’s adjusted family net income and does not require any contributions to be made. The CDSG is based on both the beneficiary’s family net income and contribution amounts. In addition, up to 10 years of unused grants and bond entitlements can be carried forward.

First Home Savings Account (FHSA) – If you are a Canadian resident, age 18 or older and planning to become first-time homebuyers. Starting from April 1, 2023, this account serves as a valuable tool for saving towards the purchase of a qualifying first home. 

The FHSA program comes with an annual contribution limit of $8,000, and a cumulative lifetime cap of $40,000, with the flexibility to carry forward up to $8,000 in unused contributions. Importantly, contributions made to the FHSA are tax-deductible, offering potential tax benefits. Additionally, the returns earned on your savings within this account are not subject to taxation, which can enhance the overall growth of your savings. Most notably, when you make qualifying withdrawals to buy your first home, these withdrawals are non-taxable.

Retirees

Registered Retirement Income Fund (RRIF) – Turning 71 this year? If so, you are required to end your RRSP by December 31. You have several choices on what to do with your RRSP, including transferring your RRSP to a registered retirement income fund (RRIF), cashing out your RSSP, or purchasing an annuity. Talk to us about the tax implications of each of these choices. 

Pension Income- Are you 65 or older and receiving pension income? If your pension income is eligible, you can deduct a federal tax credit equal to 15% on the first $2,000 of pension income received – plus any provincial tax credits. Don’t currently have any pension income? You may want to think about withdrawing $2,000 from an RRIF each year or using RRSP funds to purchase an annuity that pays at least $2,000 per year.

Canada Pension Plan (CPP) – If you’ve reached the age of 60, you may be considering applying for CPP. Keep in mind that if you do this, the monthly amount you’ll receive will be smaller. Also, you don’t have to have retired to be able to apply for CPP. Talk to us; we can help you figure out what makes the most sense.

Old Age Security – For individuals aged 65 or older, securing enrollment in Old Age Security (OAS) benefits is essential. It’s important to note that retroactive OAS payments are limited to a maximum of 11 months plus the month in which you apply for your OAS benefits. Moreover, if you encounter OAS clawback challenges due to exceeding income thresholds, there are strategic measures you can take including income splitting or reduction. 

If eligible, you can opt to defer the initiation of your OAS benefits for up to 60 months after turning 65. This choice results in a permanent increase of 0.6% in your monthly OAS payment for each month of deferral.

These financial strategies, when combined with timely enrollment in OAS benefits, can help you navigate OAS-related matters effectively, ensuring you receive the maximum benefits available to you while optimizing your retirement income.

Estate planning arrangements – Review your estate plan annually to ensure that it reflects the current tax rules. Consider strategies for minimizing probate fees. If you’re over 64 and living in a high probate province, consider setting up an inter vivos trust as part of your estate plan.


Students

Education, tuition, and textbook tax credits – If you’re attending post-secondary school, claim these credits where available.

Canada tuition credit – If you’re between 25 to 65 and enrolled in an eligible educational institution, you can claim a federal tax credit of $250 per year, $5,000 maximum lifetime tax credit. You can claim tuition paid on your taxes, carry the amount forward, or transfer an unused tuition amount to a spouse, parent, or grandparent.

Need some additional guidance?

Reach out to us if you have any questions. We’re here to help.

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2023 Year-End Tax Tips and Strategies for Business Owners

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2023 Year-End Tax Tips and Strategies for Business Owners

Now that we’re approaching the end of the year, it’s time to review your business finances. We’ve highlighted the most critical tax-planning tips you need to know as a business owner.

Salary/Dividend Mix

As a business owner, an essential part of tax planning is determining if you receive salary or dividends from the business.

When you’re paid a salary, the corporation can claim an income tax deduction, which reduces its taxable income. You include this pay in your personal taxable income. You’ll also create Registered Retirement Savings Plan (RRSP) contribution room.

As a general guideline, if you find yourself needing to take money out of your corporation, like for personal expenses, it’s a good idea to consider withdrawing a salary to create room for contributing to your Registered Retirement Savings Plan (RRSP). By receiving a salary of up to $175,333 in 2023, you can potentially generate RRSP contribution room for the following year, amounting to a maximum of $31,560 (the 2024 limit).

If you don’t have an immediate need to withdraw funds from your corporation, you might still want to take out enough money to maximize your contributions to RRSPs and Tax-Free Savings Accounts (TFSAs). These plans can offer an effective way to earn a return on your investments without incurring taxes.

Lastly, it’s worth considering the option of leaving any surplus funds in your corporation to take advantage of substantial tax deferral benefits. This strategy may potentially result in more substantial investment income over the long term compared to personal investing.

The alternative is the corporation can distribute a dividend to you. The corporation must pay tax on its corporate income and can’t claim the dividend distributed as a deduction. However, because of the dividend tax credit, the dividend typically pays a lower tax rate (than for salary) on eligible and non-eligible dividends.

In addition to paying yourself, you can consider paying family members. These are the main options you can consider when determining how to distribute money from your business:

  • Pay a salary to family members who work for your business and are in a lower tax bracket. This enables them to declare an income so that they can contribute to the CPP and an RRSP. You must be able to prove the family members have provided services in line with the amount of compensation you give them.

  • Pay dividends to family members who are shareholders in your company. The amount of dividends someone can receive without paying income tax on them will vary depending on the province or territory they live in.

  • Distribute money from your business via income sprinkling, which is shifting income from a high-tax rate individual to a low-rate tax individual. However, this strategy can cause issues due to tax on split income (TOSI) rules. A tax professional can help you determine the best way to “income sprinkle” so none of your family members are subject to TOSI.

  • Keep money in the corporation if neither you nor your family members need cash. Taxes can be deferred if your corporation retains income and the corporation’s tax rate is lower than your tax rate.

No matter what strategy you take to distribute money from your business, keep in mind the following:

  • Your marginal tax rate as the owner-manager.

  • The corporation’s tax rate.

  • Health and payroll taxes

  • How much RRSP contribution room do you have?

  • What you’ll have to pay in CPP contributions.

  • Other deductions and credits you’ll be eligible for (e.g., charitable donations or childcare or medical expenses).

Compensation

Another important part of year-end tax planning is determining appropriate ways to handle compensation. Compensation is financial benefits that go beyond a base salary.

These are the main things to consider when determining how you want to handle compensation:

  • Can you benefit from a shareholder loan? A shareholder loan is an agreement to borrow funds from your corporation for a specific purpose and offers deductible interest.

  • Do you need to repay a shareholder loan to avoid paying personal income tax on your borrowed amount?

  • Is setting up an employee profit-sharing plan a better way to disburse business profits than simply paying a bonus?

  • Keep in mind that when an employee cashes out a stock option, only one party (the employee OR the employer) can claim a tax deduction on the cashed-out stock option.

  • Consider setting up a retirement compensation arrangement (RCA) to help fund your or your employee’s retirement.

Passive Investments

One of the most common tax advantages available to Canadian-controlled private corporations (CCPC) is the first $500,000 of active business income in a CCPC qualifies for the small business deduction (SBD), which reduces the corporate tax rate by 12% to 21%, depending on the province or territory.

With the SBD, you can reduce your corporate tax rate, but remember that the SBD will be reduced by five dollars for every dollar of passive investment income over $50,000 your CCPC earned the previous year.

The best way to avoid losing any SBD is to ensure that the passive investment income within your associated corporation group does not exceed $50,000.

These are some of the ways you can make sure you preserve your access to the SBD:

  1. Defer the sale of portfolio investments as necessary.

  2. Adjust your investment mix to be more tax efficient. For example, you could hold more equity investments than fixed-income investments. As a result, only 50% of the gains realized on shares sold is taxable, but investment income earned on bonds is fully taxable.

  3. Invest excess funds in an exempt life insurance policy. Any investment income earned on an exempt life insurance policy is not included in your passive investment income total.

  4. Set up an individual pension plan (IPP). An IPP is like a defined benefit pension plan and is not subject to the passive investment income rules.

Depreciable Assets

Consider speeding up the purchase of depreciable assets for year-end tax planning. A depreciable asset is a capital property on which you can claim Capital Cost Allowance (CCA).

Here’s how to make the most of tax planning with depreciable assets:

  • Make use of the Accelerated Investment Incentive. This incentive makes some depreciable assets eligible for an enhanced first-year allowance.

  • Consider postponing the sale of a depreciable asset if it will result in recaptured depreciation for your 2023 taxation year.

Qualified Small Business Corporation (QSBC) Share Status

Ensure your corporate shares are eligible to get you the $971,190 (for 2023) lifetime capital gains exemption (LCGE). The LCGE is $1,000,0000 for dispositions of qualified farm or fishing property.

Suppose you sell QSBC shares scheduled to close in late December 2023 to January 2024. In that case, you may want to consider deferring the sale to access a higher LCGE for 2024 and therefore defer the tax payable on any gain arising from the sale.

Consider taking advantage of the LCGE and restructuring your business to multiply access to the exemption with other family members. But, again, you should discuss this with us, your accountant and legal counsel to see how this can benefit you.

Business Transition

When considering the transfer of your business, family farm, or fishing corporation to your children or grandchildren, it is advisable to engage in a discussion with your advisor. This conversation should encompass an examination of recent and upcoming proposed changes to the Income Tax Act. These changes include the introduction of additional requirements that must be fulfilled for transfers taking place after 2023. The purpose of this discussion is to assess how these amendments may affect the tax implications associated with the sale of your assets.

Donations

Another essential part of tax planning is to make all your donations before year-end. This applies to both charitable donations and political contributions.

For charitable donations, you need to consider the best way to make your donations and the different tax advantages of each type of donation. For example, you can:

  • Donate Securities

  • Give a direct cash gift to a registered charity

  • Use a donor-advised fund account at a public foundation. A donor-advised fund is like a charitable investment account.

  • Set up a private foundation to solely represent your interests.

  • We can help walk you through the tax implications of these types of charitable donations.

  • Get year-end tax planning help from someone you can trust!

We’re here to help you with your year-end tax planning. So book a meeting with us today to learn how you can benefit from these tax tips and strategies.

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Why Insurance Is So Important If You’re A Single Parent

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Why Insurance Is So Important If You’re A Single Parent

Your kids mean everything to you – and you want to make sure they’re protected no matter what. As a single parent, you must have the right health and life insurance options in place to make that happen. We recommend you consider all of the following types of insurance:

  • Disability insurance

  • Critical illness insurance

  • Accident insurance

  • Life insurance

Disability insurance

Disability insurance can provide you with an income if you become disabled and cannot work – whether it’s for a short period of time or a long one.

Most workplaces offer disability coverage, but it’s tied to that particular job, so you’ll lose coverage if you leave that job. As well, the coverage from your employer’s plan may not be sufficient to cover your needs if you become disabled.

It’s particularly important for you to look into disability insurance if you work as a contractor or have a job with no benefits.

Critical illness insurance

Critical illness insurance can help you pay for the costs associated with various serious medical issues (such as a heart attack, cancer, or a stroke) that aren’t covered by any other health plans or disability insurance. As a single parent, you may find the payout from a critical illness insurance policy especially helpful for paying for extra childcare or lost income if you cannot work.

Accident insurance

Life is getting busier than ever – and there are more and more of us on the roads. Unfortunately, more people on the roads mean more accidents. If you buy accident insurance for yourself or your children, the payout from the policy can bring in some extra income at a critical time of need if any of you are in an accident. You can use an accident insurance payout to help pay for anything from lost income to private home care.

Life insurance

Life insurance is critical as a single parent as your children are dependent on your income. Generally, we suggest that you get a policy that is worth at least 10 times your annual income, but you may need more if you have a lot of debt or you need the money to last a long time.

Your children should be the beneficiaries of your policy and you can name a trustee (such as a grandparent or other relative) to look after the money on your children’s behalf until they reach a specified age.

We can help!

If you have questions about what kind of insurance is best for you, we’re happy to answer them! We’ll walk you through all your options and put together an insurance package that’s just right for you. Call us today!

Understanding Tax-Free Savings Accounts (TFSAs)

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A Tax-Free Savings Account (TFSA) is an investment vehicle available to Canadian residents. It offers numerous benefits, including tax-free growth of your investments and tax-free withdrawals. Before you decide to open a TFSA, it’s essential to understand the eligibility requirements, contribution limits, eligible investments, and withdrawal rules. 


Eligibility Requirements

To open a TFSA, you must be a resident of Canada with a valid Social Insurance Number (SIN) and be at least 18 years old. However, in some provinces and territories, the legal age to enter a contract (which includes opening a TFSA) is 19. The TFSA contribution room for the year an individual turns 18 is carried over to the following year if the individual resides in a jurisdiction where the legal age is 19.


Benefits

One of the primary benefits of a TFSA is that it allows your investments to grow tax-free. Any income you earn from your investments within the TFSA is not taxed, even upon withdrawal. This includes interest, dividends, and capital gains. 

Additionally, you can withdraw any amount from your TFSA at any time, and the withdrawals are tax-free. It’s important to note that withdrawing funds from your TFSA does not reduce the total amount of contributions you have made for the year. The amount withdrawn in a year will be added back to your TFSA contribution room at the beginning of the following year.


Contribution Limit

The annual TFSA dollar limit has varied over the years. From 2009 to 2012, it was $5,000; in 2013 and 2014, it was $5,500; in 2015, it increased to $10,000; from 2016 to 2018, it was $5,500; from 2019 to 2022, it was $6,000, and in 2023, it is $6,500. This annual limit will be indexed to inflation and rounded to the nearest $500. 

The maximum amount you can contribute to a TFSA is determined by your TFSA contribution room. This room is the sum of the TFSA dollar limit of the current year, any unused TFSA contribution room from previous years, and any withdrawals made from the TFSA in the previous year. 

Let’s look at two examples to better understand this:

Example #1: Carry Forward Unused Room to Your Current Contribution

In 2020, the annual TFSA contribution limit is $6,000. If you only contribute $5,000, you would have $1,000 of unused room. This unused room gets carried over to the next year. So, in 2021, the annual contribution room is $6,000, but because of the unused room from 2020, you actually have a total contribution room of $7,000 ($6,000 for 2021 + $1,000 carried over from 2020).

Example #2: Reclaim Your Contribution Room in the Following Year When You Make a Withdrawal

In 2021, you have $7,000 in contribution room and decide to contribute the full amount. However, you also decide to make a withdrawal of $1,000 in 2021. In 2022, the annual contribution limit is $6,000, but because of the withdrawal made in 2021, you actually have a total contribution room of $7,000 ($6,000 for 2022 + $1,000 withdrawn in 2021).

Please note that if you exceed your available TFSA contribution room at any time in the year, you will have to pay a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account.


Eligible Investments

The types of investments that are permitted in a TFSA are generally the same as those allowed in a Registered Retirement Savings Plan (RRSP). These include cash, segregated funds, mutual funds, securities listed on a designated stock exchange, guaranteed investment certificates, and bonds.


Withdrawals

As mentioned earlier, you can generally withdraw any amount from the TFSA at any time, depending on the type of investment held in your TFSA. However, if you decide to replace or re-contribute all or a part of your withdrawals into your TFSA in the same year, you can only do so if you have available TFSA contribution room. 

For example, if in 2023 you withdraw $1,000 from your TFSA and later in the same year decide to re-contribute that amount, you can only do so if your contribution room for 2023 allows for it. If it doesn’t and you re-contribute the $1,000 anyway, you will be considered to have over-contributed to your TFSA in that year. This will result in a tax equal to 1% of the highest excess TFSA amount in the month, for each month that the excess amount stays in your account


Beneficiary

When establishing a Tax-Free Savings Account (TFSA), you are given the choice to designate a beneficiary. This person will be the recipient of the investments within your TFSA in the event of your death. The assets inherited by the beneficiary are not considered income, and as such, are received tax-free. It’s important to note, though, that while the inherited amount is tax-free, the beneficiary will be responsible for any tax on earnings that the TFSA generates after the original account holder’s death. 


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Understanding Registered Education Savings Plans (RESPs) in Canada

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What is an RESP?

A Registered Education Savings Plan (RESP) is a unique savings account available in Canada, designed to assist individuals, such as parents or guardians, in saving for a child’s post-secondary education. Notably, anyone can open an RESP for a child. There are two main types of RESPs: single and family plans. Single plans cater to one beneficiary who doesn’t necessarily have to be related to the contributor. In contrast, family plans can cater to multiple beneficiaries, who must be related to the contributor by blood or adoption. This special account type offers significant tax benefits and is structured explicitly to fund a child’s future educational needs.

What are the eligibility requirements to open an RESP?

Opening an RESP requires both the contributor and the beneficiary (the child for whom you’re saving) to be Canadian residents with a valid Social Insurance Number (SIN). The plan can be opened for up to 35 years, and the RESP has a lifetime contribution limit of $50,000. To qualify for the Canada Education Savings Grant (CESG), the beneficiary must be aged 17 or under.

How can my child access their RESP funds for school?

The beneficiary can start withdrawing funds from the RESP as Educational Assistance Payments (EAPs) once they enrol in an eligible post-secondary educational program. EAPs comprise the income earned in the RESP and any government grants. The original contributions made to the RESP can be withdrawn tax-free by the contributor or given to the beneficiary. Given the student’s income level and personal tax credits, they typically remain tax-free.

What are the benefits of an RESP?

RESPs offer numerous benefits. Key among them is tax-deferred growth, which means the investment income generated within the account isn’t taxed as long as it remains in the plan. Also, through programs like the CESG and the Canada Learning Bond (CLB), the Canadian government contributes to your RESP, thereby enhancing your savings. Lastly, RESPs provide a structured path to save for a child’s future education, encouraging consistent savings and financial planning.

How does the Canada Education Savings Grant work?

The CESG is a government grant that matches a portion of your annual RESP contributions. The standard matching rate is 20% on the first $2,500 contributed each year, leading to a maximum annual grant of $500. However, low-income families may qualify for a higher matching rate. Unused CESG contribution room can be carried forward, allowing for a potential maximum grant payment of $1,000 in a single year. The CESG is available until the beneficiary turns 17, with a lifetime limit of $7,200 per beneficiary.

What is the Canada Learning Bond?

The Canada Learning Bond (CLB) is another program to promote long-term savings for a child’s post-secondary education. It targets children born after 2003 from low-income families. Eligible families receive an initial $500 from the government, directly deposited into the child’s RESP. An additional $100 is added annually until the child turns 15, for a potential total of $2,000. The CLB does not require any contributions to the RESP, making it accessible even for those in a tight financial position.

What are the BCTESG and QESI?

Provincial programs such as the British Columbia Training and Education Savings Grant (BCTESG) and the Quebec Education Savings Incentive (QESI) provide additional incentives for education savings. The BCTESG offers a one-time grant of $1,200 for eligible children, and the QESI provides a refundable tax credit paid directly into an RESP for qualifying Quebec residents.

How do I open an RESP?

Opening an RESP can be done through a financial advisor. You need to provide your SIN and the SIN of the beneficiary. Understanding the terms, conditions, and potential fees linked with the RESP offered by your chosen institution is crucial. You can make regular contributions or contribute lump sums as you see fit. Inquiring about the types of investments available within the RESP is vital, as they can significantly impact the growth of your savings.

In conclusion, while RESPs offer a structured and tax-efficient way of saving for a child’s post-secondary education, they also require careful planning and consistent contributions. Be sure to understand all aspects of an RESP and consider contacting us before starting one.

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RESPs and blended families

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A client scenario illustrates pitfalls to avoid with proper planning

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Permanent versus Term Life Insurance – What are the Differences?

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Permanent versus Term Life Insurance – What are the Differences?

You know you need life insurance – but you’re not sure which kind is best for you. We can help you with that decision.

There are two main kinds of life insurance:

  • Permanent, which lasts for your entire life.

  • Term, which is only good for a set amount of time.

No matter which type of life insurance you buy – permanent or term – you can rest easy knowing you’ve provided financial protection for your family.

Permanent life insurance

Permanent life insurance is good for your entire life unless you choose to cancel it. It’s an excellent choice to give you peace of mind that you’ll always be covered, even if you develop major health issues later in life.

There are also benefits to having permanent life insurance beyond guaranteed lifelong coverage:

  • You can use the policy to build up a cash value – making it a good choice for low-risk investing.

  • You may be able to use your permanent life insurance policy as collateral for a loan, making it a good choice for business owners.

The main drawback to permanent life insurance policies is that the premiums are often more expensive than term life insurance premiums. If, however, you’re thinking long-term and can afford the premiums, permanent life insurance is a great way to ensure you’re always protected and can have some guaranteed money for your estate.

Term life insurance

Term life insurance is either valid for a set amount of time (such as five or ten years) or until you reach a set age – for example, 60. You should generally be able to renew your life insurance at the end of each term, but your premiums may go up.

Term life insurance premiums are cheaper than permanent life insurance premiums – at least, you are younger and healthier (as the risk of you dying is lower). Your premiums will increase as you age or develop health issues.

You can’t use term life insurance as collateral for a loan or use the policy to build up a cash value. There are lots of benefits to term life insurance, though – it’s a good choice for you if you want low premiums, easy-to-understand insurance, and only need it for a set amount of time – such as while you have a mortgage or young children.

We can help you decide between permanent and term life insurance

If you’re not sure what kind of life insurance is best for you, we can help. We’re happy to talk to you to get more information about your insurance needs. We can then discuss what each type of insurance will cost you and which type of insurance we feel is best for you.

Give us a call today!

Demystifying MER’s (Management Expense Ratio)

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Investing in a fund requires a good understanding of its associated costs, including the Management Expense Ratio (MER). In this article and infographic, we’ll break down the different components of the MER.

Understanding the Management Expense Ratio

The Management Expense Ratio is a percentage of the total assets in an investment fund that covers the cost of managing and operating the fund. It’s essential to remember that the MER is deducted from your investment returns. Therefore, a higher MER means lower net returns for you.

For instance, if a fund’s expenses added up to 2% of its assets, its MER would be 2%. It’s essential to keep in mind that your returns are reported after the MER is deducted. Therefore, a higher MER can lead to lower net returns for you. Understanding a fund’s MER is important in making informed investment decisions and ensuring you’re getting the most value for your money.

Components of the Management Expense Ratio

There are several components of the MER, including:

Investment Management Fee

The investment management fee is the cost of professional investment management, fund administration, and support services. Investment fund managers and analysts conduct research and analysis of current and potential holdings for the fund, providing investors access to their expertise, education, and experience.

Trailing Commission

The trailing commission compensates the investment dealer and financial advisor for selling the fund and providing ongoing financial advice and service to the investor. The commission also covers trade confirmation, account openings and closing, issuance of statements and communications, and regulatory compliance activities.

Operating Expenses

Operating expenses are essential for the smooth operation of the investment fund, and they ensure that investors receive the information they need to make informed investment decisions. These expenses cover day-to-day costs, including record-keeping fees, accounting and fund valuation costs, custody fees, audit and legal fees, reports and prospectuses, and filing fees.

Taxes

Investment funds are required to pay taxes on their management and administration fees. In addition, they must also include GST/HST in their fees.

It’s essential to comprehend the different factors that comprise the Management Expense Ratio to make informed investment decisions and maximize your investment’s value.

To obtain further details, please do not hesitate to contact us.

Essential tips and tricks for paying less tax and keeping more of your retirement income

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Essential tips and tricks for paying less tax and keeping more of your retirement income

Most of your retirement income sources are taxable; Canadian Pension Plan (CPP), your personal pension plan (if you have one) and income from your RRIFs. However, if you’ve set up a TFSA in addition to your RRSPs, then you’re in luck – money you take out of your TFSA isn’t taxable!

We have some tips on combining savvy withdrawal strategies with retirement-related tax deductions to keep more of your retirement income.

Make a Plan

Determine all the different sources of retirement income you’ll have – don’t forget about things like annuities, GICs or income from a rental property if you have one. Once you have a complete list, a professional financial advisor can give you tips on when it’s best to start collecting pension income as well as how much to withdraw from your taxable investments. A strong plan can help reduce the amount of tax you have to pay and extend the life of your retirement income!

Split your pension income

If you have reached the age of 65 and have a pension, you can split up to 50% of the pension income with your spouse. Splitting your pension with a lower-income spouse can add up to savings, as this will cut down on the amount of taxes you’ll have to pay overall.

While rewarding, the process to split your pension income can be complicated, so it’s best to get professional advice before starting this process.

Buy an annuity

Annuities are a financial product that will provide you with a guaranteed regular income – a good choice if you are worried about your retirement savings running out.

These are the most common types of annuities:

  • Life annuities provide you with a guaranteed lifetime income, with the option for the annuity to be paid to a beneficiary after you die.

  • Term-certain annuities provide guaranteed income payments for a fixed period. A beneficiary or your estate will receive regular payments if you die before the term ends.

  • Variable annuities will provide you with both a fixed income and a variable income. The variable income will be based on the return of the annuity provider on the performance of the investments your annuity provider invests your money in.

All types of annuities will spread out the income from your retirement savings to lessen the tax you pay each year.

Take advantage of tax breaks

Now that you’re retired, there are retirement-related tax breaks you need to know about. Here are some of the tax breaks or credits you may be eligible for:

  • The age amount

  • The home accessibility tax credit

  • The medical expense tax credit

  • The disability tax credit

  • The pension income tax credit

We can help!

We can put together a plan that helps you keep more of your retirement income – call us today!

The Best Way to Buy Mortgage Insurance

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Before buying insurance from your bank to cover your mortgage, please consider your options. What does the insurance cover?

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