http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100 Radiant WebTools By splitting income with a spouse, the higher income taxpayer can reduce net income and taxable income. The benefits of this include reducing the taxpayer's marginal tax rate (and possibly increasing the spouse's marginal rate) reducing or eliminating OAS clawback creating a pension tax credit for the spouse (with pension splitting) If both spouses are in the same tax bracket, income splitting will not provide the benefit of a reduction in the marginal tax rate. However, pension splitting may still be useful if it creates or increases a pension tax credit for the spouse. See our articles on different methods of income splitting: Family Tax Cut (FTC) - non refundable tax credit for spouses with children under 18 Pension income splitting Sharing your CPP retirement pension with a spouse Transfer dividend income to a spouse - In some circumstances, Canadian dividend income may be included in the income of either spouse. Transfer capital losses to a spouse - using superficial loss rules Spousal RRSPs and RRIFs, and attribution rules Lend money to your spouse or child Other income-splitting ideas: Filing Tax Returns When You Have a Spouse Includes Claiming tax credits and deductions with a spouse Reporting/allocating investment income earned in a joint account Split income by employing your spouse or child If you are self-employed, you can employ your spouse or your children. The spouse or children must be paid a reasonable wage for services performed. See also Don't pay unnecessary unemployment insurance premiums on our Small Business page. Have the lower income spouse invest all earnings If both spouses are earning income, but one is in a much higher tax bracket, the lower income spouse could invest all earnings, while household and other expenses are paid by the higher income spouse. By splitting income with a spouse, the higher income taxpayer can reduce net income and taxable income. The benefits of this include reducing the taxpayer's marginal tax rate (and possibly increasing the spouse's marginal rate) reducing or eliminating OAS clawback creating a pension tax credit for the spouse (with pension splitting) If both spouses are in the same tax bracket, income splitting will not provide the benefit of a reduction in the marginal tax rate. However, pension splitting may still be useful if it creates or increases a pension tax credit for the spouse. See our articles on different methods of income splitting: Family Tax Cut (FTC) - non refundable tax credit for spouses with children under 18 Pension income splitting Sharing your CPP retirement pension with a spouse Transfer dividend income to a spouse - In some circumstances, Canadian dividend income may be included in the income of either spouse. Transfer capital losses to a spouse - using superficial loss rules Spousal RRSPs and RRIFs, and attribution rules Lend money to your spouse or child Other income-splitting ideas: Filing Tax Returns When You Have a Spouse Includes Claiming tax credits and deductions with a spouse Reporting/allocating investment income earned in a joint account Split income by employing your spouse or child If you are self-employed, you can employ your spouse or your children. The spouse or children must be paid a reasonable wage for services performed. See also Don't pay unnecessary unemployment insurance premiums on our Small Business page. Have the lower income spouse invest all earnings If both spouses are earning income, but one is in a much higher tax bracket, the lower income spouse could invest all earnings, while household and other expenses are paid by the higher income spouse. http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=50321 50321 Wed, 18 Feb 2015 07:43:00 +0000 Federal non-refundable tax credits for seniors include: The Age Amount: Taxpayers over the age of 65 will receive a non-refundable credit of 15% of $6,916 if their income is $34,873 or less. If their income is over $34,873 the age amount is reduced and is eliminated when their income exceed $80,980 for the taxation year. The Pension Income Amount: Those receiving eligible pension, superannuation or annuity income can claim a non refundable tax credit of up to $2,000. In addition, those receiving eligible pension income who have a spouse or common-law partner may elect to split up to 50% of that pension income with their spouse or common-law partner thereby reducing taxes payable by the couple. Although meant to help seniors, pension income splitting is available to all taxpayers who receive pension income regardless of age. Other credits often claimed by seniors include: Disability Tax Credit: If the taxpayer has a severe and prolonged impairment that restricts the activities of daily life they may qualify for the Disability Tax Credit. To qualify for this credit, Form T2201 Disability Tax Credit Certificate must be signed by a qualified practitioner who certifies the impairment and the form must be approved by CRA. For the 2014 taxation year the claim is $7,766 and is affected by income level. Where the disabled taxpayer's income is too low to benefit from the credit, it may be transferred to a spouse or other supporting individual. Taxpayers who were eligible in previous years and did not claim this amount can request an adjustment to previously filed returns as far back as 10 years once the signed T2201 form is approved for those years. Medical Expenses: Taxpayers may claim eligible medical expenses paid in any 12 month period ending in the taxation year. For example, claims on the 2014 tax return could be for the period February 1, 2013 to January 31, 2014. All amounts paid, even if not paid in Canada, can be claimed so long as they qualify and the taxpayer is a resident of Canada. The claim for medical expenses for the taxpayer, their spouse and dependent children are reduced by 3% of the claimant's net income or $2,171 whichever is less. Claims for other dependants are reduced by 3% of that dependant's net income. Where a taxpayer has a claim for attendant care expenses as well as a claim for the disability amount, both claims can be made, but only if the attendant care claim does not exceed $10,000. If more than $10,000 was paid for attendant care, the claim should be limited to $10,000 unless the total claim exceeds the disability amount by more than $10,000. Your tax professional should be consulted to help maximize such claims. The provinces also mirror these claims but some provide additional credits for seniors. For example: the Ontario senior homeowners' property tax grant, the British Columbia seniors' home renovation tax credit, and the Newfoundland and Labrador seniors' benefit Federal non-refundable tax credits for seniors include: The Age Amount: Taxpayers over the age of 65 will receive a non-refundable credit of 15% of $6,916 if their income is $34,873 or less. If their income is over $34,873 the age amount is reduced and is eliminated when their income exceed $80,980 for the taxation year. The Pension Income Amount: Those receiving eligible pension, superannuation or annuity income can claim a non refundable tax credit of up to $2,000. In addition, those receiving eligible pension income who have a spouse or common-law partner may elect to split up to 50% of that pension income with their spouse or common-law partner thereby reducing taxes payable by the couple. Although meant to help seniors, pension income splitting is available to all taxpayers who receive pension income regardless of age. Other credits often claimed by seniors include: Disability Tax Credit: If the taxpayer has a severe and prolonged impairment that restricts the activities of daily life they may qualify for the Disability Tax Credit. To qualify for this credit, Form T2201 Disability Tax Credit Certificate must be signed by a qualified practitioner who certifies the impairment and the form must be approved by CRA. For the 2014 taxation year the claim is $7,766 and is affected by income level. Where the disabled taxpayer's income is too low to benefit from the credit, it may be transferred to a spouse or other supporting individual. Taxpayers who were eligible in previous years and did not claim this amount can request an adjustment to previously filed returns as far back as 10 years once the signed T2201 form is approved for those years. Medical Expenses: Taxpayers may claim eligible medical expenses paid in any 12 month period ending in the taxation year. For example, claims on the 2014 tax return could be for the period February 1, 2013 to January 31, 2014. All amounts paid, even if not paid in Canada, can be claimed so long as they qualify and the taxpayer is a resident of Canada. The claim for medical expenses for the taxpayer, their spouse and dependent children are reduced by 3% of the claimant's net income or $2,171 whichever is less. Claims for other dependants are reduced by 3% of that dependant's net income. Where a taxpayer has a claim for attendant care expenses as well as a claim for the disability amount, both claims can be made, but only if the attendant care claim does not exceed $10,000. If more than $10,000 was paid for attendant care, the claim should be limited to $10,000 unless the total claim exceeds the disability amount by more than $10,000. Your tax professional should be consulted to help maximize such claims. The provinces also mirror these claims but some provide additional credits for seniors. For example: the Ontario senior homeowners' property tax grant, the British Columbia seniors' home renovation tax credit, and the Newfoundland and Labrador seniors' benefit http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=50303 50303 Mon, 16 Feb 2015 18:29:00 +0000 Starting Early You can elect to begin receiving your CPP retirement pension as early as age 60 – but at a price. There is a penalty of 0.6% for each month the pension starts before your 65th birthday. Those who start at age 60 will suffer a penalty of 36% of their pension entitlement. Thus, if your Statement of Contributions from Service Canada shows that you would be entitled to a $1,000 per month pension at age 65, your pension will only be $640 per month if you start at age 60. If you continue to work after you receive your pension, you must still continue to contribute to CPP until age 65. After you reach 65, you can opt out of contributing if you're already receiving your pension. On the bright side, those extra contributions will earn you a small additional pension called a post-retirement benefit. Delaying If you delay starting your pension beyond your 65th birthday, you'll receive a larger monthly benefit. Your pension will be increased by 0.7% for each month you delay – for up to 60 months. If you delay until your 70th birthday, your pension will be increased by 42%. For example, if you were entitled to a $1,000 per month pension at age 65, and you delay until age 70, your pension will be $1,420 per month. On the down side, you'll have to continue contributing to age 70 if you continue to work. Those extra contributions will earn you an additional post-retirement benefit. Longevity Perhaps the most difficult question to answer is 'How long will I live?' The longer you live, the longer you'll receive your pension and therefore the more you'll get from CPP. A general rule of thumb is that if you'll live beyond age 74, you will benefit from delaying the start of CPP. If you live to age 80 or beyond you'll get more from CPP if you delay starting to age 70. The average Canadian who makes it to age 65 will live to about age 85. Death When you die, the maximum death benefit from CPP is $2,500. If you have a spouse, they will be entitled to a survivor pension of 60% of the deceased taxpayer's pension entitlement. Pension Limits The maximum CPP retirement pension for 2015 is $1,065 per month (excluding any post-retirement benefit and increase for delaying). That maximum includes both the taxpayer's own CPP retirement pension and any survivor pension that they are entitled to. This means that where both spouses have CPP pension entitlement, the amount of the survivor pension may be reduced or even eliminated Case Study – Twin Brothers Frank and Martin are each entitled to a CPP retirement pension of $1,000 per month at age 65. Both will retire at age 60 but Frank will start his CPP pension at age 60 and Martin will wait until he is 70. Who will receive the most from CPP? The answer depends on how long each of them lives. Frank's CPP pension will be $640 per month while Martin's will be $1,420. However, Frank will receive $76,800 (indexed) before Martin gets his first cheque. Clearly if they die before age 70, Frank will have received more as Martin's only benefit will be the CPP death benefit. The table below shows the accumulated pension received by each at various times in the future. Amounts shown are in current dollars (i.e. not indexed for inflation). AGE 60 65 70 75 80 85 90 95 100 FRANK $0 $38,400 $76,800 $115,200 $153,600 $192,000 $230,400 $268,800 $307,200 MARTIN $0 $0 $0 $62,520 $125,040 $187,560 $250,080 $312,600 $375,120 By starting early, Frank receives more pension than Martin until they reach age 86. If they live beyond age 86, Martin's accumulated pension will exceed Frank's. Starting Early You can elect to begin receiving your CPP retirement pension as early as age 60 – but at a price. There is a penalty of 0.6% for each month the pension starts before your 65th birthday. Those who start at age 60 will suffer a penalty of 36% of their pension entitlement. Thus, if your Statement of Contributions from Service Canada shows that you would be entitled to a $1,000 per month pension at age 65, your pension will only be $640 per month if you start at age 60. If you continue to work after you receive your pension, you must still continue to contribute to CPP until age 65. After you reach 65, you can opt out of contributing if you're already receiving your pension. On the bright side, those extra contributions will earn you a small additional pension called a post-retirement benefit. Delaying If you delay starting your pension beyond your 65th birthday, you'll receive a larger monthly benefit. Your pension will be increased by 0.7% for each month you delay – for up to 60 months. If you delay until your 70th birthday, your pension will be increased by 42%. For example, if you were entitled to a $1,000 per month pension at age 65, and you delay until age 70, your pension will be $1,420 per month. On the down side, you'll have to continue contributing to age 70 if you continue to work. Those extra contributions will earn you an additional post-retirement benefit. Longevity Perhaps the most difficult question to answer is 'How long will I live?' The longer you live, the longer you'll receive your pension and therefore the more you'll get from CPP. A general rule of thumb is that if you'll live beyond age 74, you will benefit from delaying the start of CPP. If you live to age 80 or beyond you'll get more from CPP if you delay starting to age 70. The average Canadian who makes it to age 65 will live to about age 85. Death When you die, the maximum death benefit from CPP is $2,500. If you have a spouse, they will be entitled to a survivor pension of 60% of the deceased taxpayer's pension entitlement. Pension Limits The maximum CPP retirement pension for 2015 is $1,065 per month (excluding any post-retirement benefit and increase for delaying). That maximum includes both the taxpayer's own CPP retirement pension and any survivor pension that they are entitled to. This means that where both spouses have CPP pension entitlement, the amount of the survivor pension may be reduced or even eliminated Case Study – Twin Brothers Frank and Martin are each entitled to a CPP retirement pension of $1,000 per month at age 65. Both will retire at age 60 but Frank will start his CPP pension at age 60 and Martin will wait until he is 70. Who will receive the most from CPP? The answer depends on how long each of them lives. Frank's CPP pension will be $640 per month while Martin's will be $1,420. However, Frank will receive $76,800 (indexed) before Martin gets his first cheque. Clearly if they die before age 70, Frank will have received more as Martin's only benefit will be the CPP death benefit. The table below shows the accumulated pension received by each at various times in the future. Amounts shown are in current dollars (i.e. not indexed for inflation). AGE 60 65 70 75 80 85 90 95 100 FRANK $0 $38,400 $76,800 $115,200 $153,600 $192,000 $230,400 $268,800 $307,200 MARTIN $0 $0 $0 $62,520 $125,040 $187,560 $250,080 $312,600 $375,120 By starting early, Frank receives more pension than Martin until they reach age 86. If they live beyond age 86, Martin's accumulated pension will exceed Frank's. http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=50302 50302 Mon, 16 Feb 2015 18:27:00 +0000 If the family qualifies (two 'spouses' living together at the end of 2014 with a child ordinarily living with them who is under 18, and no other disqualifications), the amount of the Family Tax Cut will depend on a number of factors. Here are a few 'rules of thumb': There will be no credit unless the spouses' taxable incomes are in different brackets. The greater the difference between the taxable income levels of the spouses, the greater the potential for the credit. To get the full $2,000 benefit, the spouses' income levels must be at least two brackets apart and the higher-income spouse must have taxable income of at least $72,525. The table below shows the range of Family Tax Cut values for families based on the tax bracket of each spouse: Family Tax Cut Ranges (based on Tax Brackets for each Spouse) Spouse 1 ➜ Spouse 2 ⬇ Bracket 1 (15%) Under $43,953 Bracket 2 (22%) $43,954 to $87,907 Bracket 3 (26%) $87,908 to $136,270 Bracket 4 (29%) Over $136,270 Bracket 1 (15%) Under $43,953 $0 $0 to $2,000 $0 to $2,000 $1,758 to $2,000 Bracket 2 (22%) $43,954 to $87,907 $0 to $2,000 $0 $0 to $1,758 $0 to $2,000 Bracket 3 (26%) $87,908 to $136,270 $0 to $2,000 $0 to $1,758 $0 $0 to $1,451 Bracket 4 (29%) Over $136,270 $1,758 to $2,000 $0 to $2,000 $0 to $1,451 $0 If the family qualifies (two 'spouses' living together at the end of 2014 with a child ordinarily living with them who is under 18, and no other disqualifications), the amount of the Family Tax Cut will depend on a number of factors. Here are a few 'rules of thumb': There will be no credit unless the spouses' taxable incomes are in different brackets. The greater the difference between the taxable income levels of the spouses, the greater the potential for the credit. To get the full $2,000 benefit, the spouses' income levels must be at least two brackets apart and the higher-income spouse must have taxable income of at least $72,525. The table below shows the range of Family Tax Cut values for families based on the tax bracket of each spouse: Family Tax Cut Ranges (based on Tax Brackets for each Spouse) Spouse 1 ➜ Spouse 2 ⬇ Bracket 1 (15%) Under $43,953 Bracket 2 (22%) $43,954 to $87,907 Bracket 3 (26%) $87,908 to $136,270 Bracket 4 (29%) Over $136,270 Bracket 1 (15%) Under $43,953 $0 $0 to $2,000 $0 to $2,000 $1,758 to $2,000 Bracket 2 (22%) $43,954 to $87,907 $0 to $2,000 $0 $0 to $1,758 $0 to $2,000 Bracket 3 (26%) $87,908 to $136,270 $0 to $2,000 $0 to $1,758 $0 $0 to $1,451 Bracket 4 (29%) Over $136,270 $1,758 to $2,000 $0 to $2,000 $0 to $1,451 $0 http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=50301 50301 Mon, 16 Feb 2015 18:21:00 +0000 Average refund was $1665 for 2013 up from $1646 in 2012. People contine to ignore the tax return to create real wealth.If you were to invest the $1655 into a Tax Free Savings Account (TFSA) for 40 years at a 3% return, you would have just short of $128,900 in your fund. Average refund was $1665 for 2013 up from $1646 in 2012. People contine to ignore the tax return to create real wealth.If you were to invest the $1655 into a Tax Free Savings Account (TFSA) for 40 years at a 3% return, you would have just short of $128,900 in your fund. http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=48179 48179 Mon, 18 Aug 2014 11:10:00 +0000 How do I calculate my ideal RRSP contribution? You must have RRSP contribution room in order to contribute. This can be found on your Notice of Assessment from CRA last year so locate this as a first step. Make sure you didn't miss filing a tax return in any of the 10 prior years to ensure you maximize your RRSP room. If you are over 18, you can contribute up to this allowable contribution room plus make a $2,000 over-contribution. You can deduct the whole amount on Line 208 of your tax return to reduce your taxes this year, or you can carry forward the undeducted amount and use it next year if your income is higher or if you are not taxable. A tax specialist can help you with the 'what if' scenarios. Your ideal contribution is one that will maximize the income tax savings while meeting your goal for retirement and keeping within your current budget restraints. The greatest tax savings result when you contribute as much as you can to reduce your taxable income in your current tax bracket. For example, if your taxable income for 2013 is $50,000, you'll be paying 22% federally on the last $6,439 (because the 22% bracket starts at $47,561). Contributing $6,439, if you have available room and can afford to, will eliminate all federal taxes at the 22% rate, as well as the provincial taxes on that income. Be sure to keep in mind your long-term goal of generating a retirement income when making the decision about how much to contribute. How do I calculate my ideal RRSP contribution? You must have RRSP contribution room in order to contribute. This can be found on your Notice of Assessment from CRA last year so locate this as a first step. Make sure you didn't miss filing a tax return in any of the 10 prior years to ensure you maximize your RRSP room. If you are over 18, you can contribute up to this allowable contribution room plus make a $2,000 over-contribution. You can deduct the whole amount on Line 208 of your tax return to reduce your taxes this year, or you can carry forward the undeducted amount and use it next year if your income is higher or if you are not taxable. A tax specialist can help you with the 'what if' scenarios. Your ideal contribution is one that will maximize the income tax savings while meeting your goal for retirement and keeping within your current budget restraints. The greatest tax savings result when you contribute as much as you can to reduce your taxable income in your current tax bracket. For example, if your taxable income for 2013 is $50,000, you'll be paying 22% federally on the last $6,439 (because the 22% bracket starts at $47,561). Contributing $6,439, if you have available room and can afford to, will eliminate all federal taxes at the 22% rate, as well as the provincial taxes on that income. Be sure to keep in mind your long-term goal of generating a retirement income when making the decision about how much to contribute. http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=45194 45194 Mon, 27 Jan 2014 15:56:00 +0000 Approximately 35% of all returns filed in Canada are not taxable. Millions of others have net income levels low enough to qualify for full or partial refundable tax credits, so be sure to file even if you have no income. Eligibility for Refundable Tax Credits Refundable tax credits can be received from the federal government, and in some cases, provincial governments. The following people may not claim refundable credits: Those confined to a prison at the end of the year and so confined for six months or more. Those who died during the year. Diplomats who are not taxable in Canada. Teenagers Should File for GST/HST Credits. Typical first-time credit filers are 18-year-olds who file for the federal GST/HST Credit, which they will receive the quarter after they turn 19, and at-home single mothers who file for the CCTB and the GSTC. Filing a Return is Easy. If a GST/HST Credit filer has no income at all to report, filing a return is as simple as counting to five: Enter the taxpayer identification information. Answer the citizenship and Elections Canada questions and address the foreign property lines. Check yes under the GST/HST Credit application in the last box on Page 1 (your software may do this automatically for you). Your software will enter zeros on the key income lines: 150, 236, 260. Your software will determine the amount of credit available to the taxpayer. This will show up on the tax summary as well. Article provided by the Knowledge Bureau Approximately 35% of all returns filed in Canada are not taxable. Millions of others have net income levels low enough to qualify for full or partial refundable tax credits, so be sure to file even if you have no income. Eligibility for Refundable Tax Credits Refundable tax credits can be received from the federal government, and in some cases, provincial governments. The following people may not claim refundable credits: Those confined to a prison at the end of the year and so confined for six months or more. Those who died during the year. Diplomats who are not taxable in Canada. Teenagers Should File for GST/HST Credits. Typical first-time credit filers are 18-year-olds who file for the federal GST/HST Credit, which they will receive the quarter after they turn 19, and at-home single mothers who file for the CCTB and the GSTC. Filing a Return is Easy. If a GST/HST Credit filer has no income at all to report, filing a return is as simple as counting to five: Enter the taxpayer identification information. Answer the citizenship and Elections Canada questions and address the foreign property lines. Check yes under the GST/HST Credit application in the last box on Page 1 (your software may do this automatically for you). Your software will enter zeros on the key income lines: 150, 236, 260. Your software will determine the amount of credit available to the taxpayer. This will show up on the tax summary as well. Article provided by the Knowledge Bureau http://www.finlay-associates.com/index.cfm?i=13291&mid=25&blogid=6100&comments=45193 45193 Mon, 27 Jan 2014 15:46:00 +0000