Jan. 1: TFSA contribution limit extension

Tax-free savings account holders can start the new year by contributing another $6,000 to their TFSAs. If you withdrew money from your TFSA in 2020, that contribution space can also be reclaimed. 

If you are one of the roughly 10 per cent of TFSA holders that contribute the maximum amount, the total contribution limit for anyone who was at least 18 years old in 2009 is now $75,500.

The Canada Revenue Agency (CRA) provides personal individual limits in annual Notice of Assessments on individual tax returns, and for individual tax payers who set up a CRA online account. A word of warning: Contribution limits posted by the CRA are usually for the previous year, so be sure to include contributions made in the current year.

Gains on contributions invested in a TFSA are never taxed, which means the tax-saving power of a TFSA is useless unless the money is invested. A recent BMO study found that although the average contribution amount increased by nearly 10 per cent in 2020, the biggest individual holding in TFSAs was cash, as pandemic-weary investors shied away from markets.   

Money in TFSAs can be invested in just about anything: Mutual funds, exchange-traded funds (ETFs), real estate investment trusts (REITs), stocks, bonds, guaranteed investment certificates (GICs) and even options. They can be sold and the cash can be withdrawn at any time.

March 1: RRSP contribution deadline

TFSA contributions can be made at any time but there is a March 1 deadline to make your registered retirement savings plan (RRSP) contribution if you want to lower your 2020 tax bill.

The contribution amount can be deducted from your 2020 taxable income. The higher your marginal tax rate, the bigger the tax savings. 

It’s important to know RRSPs allow savings to grow tax free until they are withdrawn; ideally at a low-tax rate in retirement. If your income was significantly reduced during the year, and you are already being taxed at a low rate, it might be wise to take a pass on claiming it for 2020. You can still make a contribution and apply it to your 2021 income or any future year when your income is higher, but this year’s March 1 deadline does not apply.

Like a TFSA, RRSP contributions can be invested in just about anything.

If you want to contribute to both your TFSA and RRSP, consider contributing to your RRSP before the deadline and putting the tax refund in your TFSA when it comes in the spring.

April 30: Income tax deadline

The 2020 tax year will be complicated for many individuals and the CRA due to the pandemic. Most government benefits, such as the Canada Emergency Response Benefit (CERB), will be fully taxed. Others were partially taxed at the source. If you received pandemic benefits during the year, it might be best to set some cash aside because any amount of tax owed after the deadline will accumulate interest. 

Canadians who received COVID benefits during the year can expect documentation to arrive well before the deadline to be included in their tax returns along with income on statements provided by employers. Be sure to include all income received during the year including capital, dividend or income gains from non-registered investment accounts.

If you are among the 40 per cent of Canadians asked to work from home during the pandemic, the CRA will automatically allow you to deduct up to $400 in home office expenses. That could be just a fraction of the real expenses associated with working from home when you add up the portion of rent and utility costs for a home office.  

If you choose the traditional “Detailed Method” you are required to keep all receipts related to your home office. It also requires your employer to fill out a streamlined form (T2200s) stating you were required to work from home. 

Don’t forget to claim your regular deductions and credits, including your RRSP contribution.

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Dale Jackson

Personal Finance Columnist, Payback Time

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