March 2014
Tax time!




Yet another RSP season is behind us, and we are proud to have helped many of you take another step towards your retirement goals. This month's collection of articles were gathered to help you shift your financial focus to the next area of concern: taxes.


Be well.



Peter, Claudio and Joanna

Share, Split & Combine

by The Wealth Consultation - March 2014


The following tax savings opportunities and strategies can be either transferred or combined between spouses. Doing so may help you realize more tax savings.


Split income with a spouse

As withdrawals from all registered plans are taxable, minimizing the tax associated with the withdrawal should be the goal of all savers. One of the best ways to accomplish this is through the use of a Spousal RSP, which allows a spouse in a higher tax bracket to allocate a future tax liability to a spouse in a lower tax bracket. While Canadians have been able to split pension income with their spouses since 2008, they can only split income from a RRIF or from an RSP annuity provided the recipient spouse is over the age of 65. Thus for those Canadians who plan to retire or semi retire before normal retirement age, spousal plans can still be advantageous.


Medical expenses

Spouses can combine the medical expenses that they have incurred for themselves as well as for those of a dependent child (under the age of 18) on the return of the lower earning spouse. That's because this non-refundable tax credit is based on those eligible medical expenses (such as dental bills and prescription drugs etc.) that are in excess of the lower of 3% of the taxpayers (lower earning spouse) net income or $2,512 ($2,171 for 2014). A 15% federal tax credit is available on expenses above this amount to a maximum of $10,000.


Prescribed rate loan

A spousal loan can be used to transfer investment income from a higher earning spouse to that of a lower earning spouse. In practice, the interest rate (that is set by Revenue Canada) paid by the borrowing spouse is a deductible expense once the loan is invested while the interest paid to the lending spouse is taxable to the lender. However, any investment earnings in excess of the prescribed rate are effectively taxed in the hands of the lower income borrower, making this an effective way to split income between spouses.


Charitable donations

While the first $200 of charitable donations claimed is eligible for a 15% federal tax credit, donations in excess of $200 are eligible for a 29% federal tax credit. As a result, spouses may want to combine their donations in order to take advantage of the higher tax credit on donations in excess of $200. Note that donations can also be carried forward for up to 5 years allowing individuals who donate smaller amounts to combine and claim their donations in a single year to also take advantage of the higher tax credit on donations in excess of $200.


Sharing your CPP

Sharing your Canada Pension Plan retirement pension with your spouse may also result in tax savings. The portion of your pension that can be shared is based on the number of months you and your spouse lived together while you were still contributing to the CPP.


Don't forget about transfers

While deductions such as child care expenses should be claimed on the tax return of the lower earning spouse other tax credits that can't be fully used by one spouse may be transferred to the return of the other spouse. Some of these credits include the:

  • Pension income amount
  • Age amount
  • Tuition and education amounts
  • Disability amount

Start Planning for 2014

by The Wealth Consultant - March 2014


Let's face it: everyone wants to find easy ways to save their hard-earned money. Some clip coupons and shop online for discounts and deals, some invest in long-term savings, and others simply drop their spare change in a piggy bank every day. But is it really possible to save money when it comes to taxes? It seems the Canada Revenue Agency makes you pay tax on everything, but there are some ways to reduce what you owe the taxman.


It might seem like free money when you receive a tax refund cheque in the mail, but the reality is it is your money. A tax refund is money you overpaid the government last year. Some people call this 'intaxication' - the excitement you feel when you get your tax refund, only to realize that it was your money in the first place.


Plan ahead

Thinking about your taxes in March is too late. You cannot do anything that will impact your return by then. Tax planning should be a year-round activity. If you have a financial plan already in place, Cleo Hamel, senior tax analyst for H&R Block Canada, suggests making tax planning a part of it. "Ideally, you want to neither owe money nor receive a refund when you file your tax return," says Hamel. "You want to pay the right amount of tax during the year, rather than give the government an interest-free loan."


Pay attention to your pay and where life takes you

If you are a salaried employee, your payroll department will ask you to complete a TD1 Form when you are hired. Employers are obligated to withhold tax based on how you complete your TD1 Form. In most cases, people fill out the form and forget about it. But if your life changes, updating your form to reflect the new situation is a good idea.


Are you a newlywed? If you get married while still working for the same employer, you should update your TD1 Form if your spouse has little to no income. For example, if your spouse earned no income in 2013, the spousal amount would result in $1,655 of tax savings. So updating your TD1 means an extra $137 per month, rather than the lump sum at tax time.


What about a new addition to the family? If you have a child you can claim the child amount, which is about $27 per month in tax savings. And if you are a single parent with custody, you can claim the eligible dependant amount. It may not result in a huge increase in your pay cheque but it is better than giving the government an interest-free loan.


Manage your investments

If you are a regular contributor to your RRSP, you can also ask for your tax withholdings to be reduced. Unfortunately, this cannot be done via a TD1 Form but through a special request to the CRA.


"It is the employee's responsibility to complete his or her own T1213 Form Request to Reduce Tax Deductions at Source, provide supporting documentation and send it to the CRA for approval," says Hamel. "And remember, the CRA will require proof that you are making your RRSP contributions so be sure to keep clear records of all of your investments - big and small."


Life events = tax events

Inheritances are not taxable, for example, but if you earn income from the money you receive then that income is taxable. And if you inherit a house when you already own one, you may be facing capital gains on the eventual sale of the home. For tax purposes, the CRA calculates gains as if the deceased sold all their assets on the day they died.


If you have a stock or share that has been good to you during the year and you cashed in some of your holdings, you will need to report the capital gain. However, you may be able to claim this against capital losses you are carrying forward. And bonuses or gifts from work may be considered a taxable benefit and appear on your T4, so you will need to pay tax on these amounts.


Life events - both good and bad - can change your tax situation and being aware of that will likely save you both money and headaches.

Five things you may not know about TFSAs

by Denise Barrett - March 2014,


After taking more than three years to get acquainted, Canadians still don't know the tax-free savings account (TFSA) as well as they should. The TFSA lets you stash extra cash for just about anything - rainy-day savings, a new house or retirement - without paying any tax on the growth within the account or on withdrawals.


Still, since the TFSA was introduced in 2009, less than one-third of Canadians have opened one. Here are five of the most common misunderstandings about the TFSA.


1. It's called a savings account, but can hold just about anything

From our earliest days, a "savings account" was where our pennies went when they came out of the piggy bank. The name suggests deposits, safety and low rates. But almost any investment you can hold in a registered retirement savings plan (RRSP) can also go into your TFSA: mutual funds, segregated funds, GICS, etc.


Personal finance expert and author Kelley Keehn is among those who wish the government had chosen a different name for the TFSA. "Many banks and financial institutions advertise a set percentage for their cash TFSAs and it's very low," she says. "Canadians see the 2% and think 'those TFSAs don't pay much.' In reality, the TFSA is a savings shelter like an RRSP and you need to choose the investment that goes within it."


2. You can re-contribute your withdrawals - but not until the next year

In the first years of the TFSA, there were many stories about Canadians accidentally over-contributing and facing penalties from the Canada Revenue Agency (CRA). Most problems came from a simple misunderstanding.

Some early owners used the TFSA like a conventional savings account, making frequent withdrawals and deposits. If the total of all deposits exceeded the $5,000 annual limit ($5,500 as of 2013), they had over-contributed.


In other words, each time you deposit funds it counts as a contribution regardless of the total amount in the account. If you deposit $5,000 and then withdraw it and deposit again in the same year, you are considered to have contributed $10,000. Moving a TFSA from one financial institution to another by withdrawing and then re-depositing may trigger an accidental over-contribution. Making a transfer avoids that problem.


So far, the Canada Revenue Agency has been forgiving, waiving penalties if you say it was an accident and promise not to do it again, but there is no guarantee they will continue to do this in the future.


The CRA tells you your annual contribution limit - just like your RRSP limit - on the notice of assessment it sent you last year after processing your tax return. Each year's contribution limit is the total of three amounts:

3. You can't lose contribution room

If you've never opened a TFSA, you can contribute up to $31,000 today - $5,000 for each year from 2009 to 2012 plus $5,500 for each of 2013 and 2014. Plus, you never lose contribution room, regardless of your age (unless you are a non-resident of Canada for an entire year, during which time you will not accumulate contribution room).


You may not have money today, but many Canadians will reap a mid-life windfall from an inheritance, downsizing a home, severance or insurance payouts. Putting such proceeds into a TFSA (provided they do not exceed the available contribution room) can help shield their future growth from income tax.


"Unused contributions from each year can be carried forward, and withdrawals will [usually] result in new contribution room," notes Krystal Yee, personal finance blogger at Give Me Back My Five Bucks. So if you use your $31,000 TFSA for a house down payment, you could have at least $36,500 in contribution room the following year. "It can be really confusing because we've never had a savings vehicle like this before."


4. You don't have to be a big saver

You can use a TFSA for your existing savings, even if they are relatively modest. So long as you don't lock the funds into a non-redeemable investment such as a guaranteed investment certificate that can only be redeemed upon maturity, you will be able to access the money at any time. This also makes a TFSA perfect to use as an emergency fund. You will have the security of knowing the money will be available if you need it.


5. You don't have to choose between a TFSA and an RRSP.

There are many clever ways to make the TFSA and RRSP work together to improve your wealth. As a general rule, RRSPs are a good choice for longer-term goals such as retirement, while TFSAs work better for more immediate objectives, such as a house down payment.

View original article here.
Issue: 40
Financial Markets
In This Issue
Share, Split & Combine
Start Planning for 2014
Planning an Inheritance - Think again!

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Peter Bailey
Wealth Advisor
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1 

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