quadrantadmin, Author at Quadrant

What’s my RRSP contribution limit for 2020?

Canadian citizens having earned income and have a social security number and have filed a tax return may contribute funds into a Registered Retirement Savings Plan(RRSP) to reduce the amount of income taxes paid. This can be done each year until the individual’s spouse reaches the age of 71. RRSPs can be opened in financial institutions or banks registered by the Canadian government. The savings placed in these accounts are tax deductible as long as they remain in the account. The maximum amount that could be contributed for the 2019 tax season is $26,500. This amount will be increased to $27,230 for the 2020 tax year. The deadline for making contributions is 60 days following the end of the tax. These contributions can be made in cash as well as stock or security holdings.

“If you’re like many Canadians, you’re hoping you’ve paid enough tax in 2019 and may even be looking forward to a hefty tax refund. You can help ensure that happens by knowing the details of your Registered Retirement Savings Plan (RRSP), what sets them apart, your contribution limit and a whole slew of other things.”

How does income from a rental property create RRSP contribution room?

A retiree has rental income both here and abroad. He is responsible for reporting profit made on those incomes both here in Canada and abroad. Foreign and domestic incomes from rental properties are eligible to increase your earned income, which is used to calculate your RRSP contributions room. If you have property in other countries and are experiencing difficulty reporting the net rental income from these properties to add to your RRSP room, you are likely not doing the appropriate reporting for tax purposes.

Key Takeaways:

Canadian residents are taxed on their worldwide income. Therefore, foreign rental income is taxable in Canada but not everyone knows or reports this income.
Income may also be taxable in the country in which it is earned, and may require filing of a foreign tax return as well. To avoid double taxation, foreign taxes paid are generally eligible to claim for a foreign tax credit in Canada.
Domestic and foreign net rental income is considered earned income for RRSP purposes. Net rental income is gross rental income minus deductions like mortgage interest, property tax, insurance, and maintenance. Net rental losses, when expenses exceed income, reduce earned income when calculating RRSP room.

“If you are looking for tax deductions, you can deduct depreciation on your rental property. CCA can be used to reduce your net rental income to zero, but not to create a net rental loss. Reducing your net rental income will reduce your earned income and resulting RRSP room.”

Are RRSPs really worth it? The answer may surprise you

It is readily apparent to those in the financial sphere that RRSPs cause consternation to many, with a fair amount electing to not contribute to them, calling them a waste of time and effort. However, at least one financier has to note that the decision is not one that should be written in stone in his opinion. Rather, it is dependent on the situation of each possible contributor. There is, for example, one quite logical reason why older single, seniors might elect to stop contributions. In such a case, upon the death of the person holding the RRSP, a widow, or widower, for example, taxes take a phenomenal bite out of the remaining RRSP balance. Another example where contributing to a TFSA could be a better choice is when a contributor is currently working at a low-paying job, but has expectations of an improved income within a few years time. It is more sensible, given such a scenario, to await the higher earnings before switching to an RRSP. If the reverse is actually the case, it can be most beneficial to contribute to the RRSP now and remove earnings when the income does the anticipated and drops. In the case of couples with a significant age gap, it is important to understand how much income is taxable in the case of each spouse. With care, it is possible to skew the benefits inherent in such a situation as required for the benefit of each spouse.

“While you will be taxed on these withdrawals as income, if the tax rate is very low because you have little other income, it usually makes sense to withdraw the money in those years and put it back when your income is much higher.”

Prep Your RRSP, Because 1 Major Mistake Can Be Penalized by the CRA

Having a RRSP account can be beneficial but be warned the CRA monitors these accounts looking for mistakes that will cost you a good chunk of your retirement savings. You should try to avoid early withdrawals. You will get hit with a tax bill on previously tax sheltered income as well as lose the contribution room in the account needed for future investments.

“Aside from the tax due, you incur other costs because of early withdrawals. You lose the tax-sheltered compounding effect.”

Is an RRSP loan a good idea?

Should you borrow money via a loan offered by Canadian banks to make contributions to your Registered Retirement Savings Plan (RRSP). According to a recent MoneySense article, that depends. Currently RRSP loans are at a bank prime rate of 3.95%, which Heath says is advantageous. Further, most Canadian banks will lend up to $50,000 with a repayment period of up to ten years.
RRSPs are most beneficial if you had a high income year, perhaps with bonuses, in 2019, but expect to withdraw funds in a future low-income year. Low-income earners are more likely to benefit from a tax-free savings account (TFSA) as opposed to an RRSP.

Key Takeaways:

Since stock markets go up 67% of the time, you may do better making a monthly lump sum payment into a RRSP rather than taking out a loan.
A lump sum payment is likely to outperform dollar-cost averages over a 5-year period of time.
Canadians considering RRSP loans should carefully examine their monthly cash flow, current debt and tax bracket before taking on more debt than they can really afford..

“RRSPs are generally a beneficial tool if you can contribute in a high-income year and withdraw in the future in a low-income year.”

It’s tax time! Do you know the difference between avoiding and evading taxes?

No matter who you are, when it comes to tax time you will try to save hold onto as much of your hard earned money as you can. You’ll want to choose your accountant wisely to ensure you hire the right one. Tax evasion, knowingly under reporting income or faking deductions is illegal. Tax avoidance can be used but can quickly turn into tax evasion if your accountant advises you on the wrong strategies. The final test is who you’ll want on your side if you ever get audited.

“It’s no surprise that taxpayers would generally like to minimize the amount of taxes owing. Over and over again courts have said that there is nothing sinister in so arranging one’s affairs so as to keep taxes as low as possible. Everybody does it, rich or poor, and all do right, for nobody owes any public duty to pay more than the law demands.“

The taxman has no place in the bedrooms of the nation, unless you claim it as a home office

The Income Tax Act allows tax deductions on expenditures employees incur for their work and are not reimbursed by the company that they work for. If you want to deduct home office expenses you need to meet the criteria required to do so. This includes a form T2200 signed by the company you work for. If you use your home or car, you may be assessed on what percentage of your home property as well as your drive time is used for work and you may have to pay a penalty if the CRA believes you deducted too much.

“One woman who primarily used her bedroom as an office went to tax court over how much of her home she was allowed to claim.”

Avoid CRA scrutiny

Every taxpayer fears the day when they get a letter saying they are being audited. While some audits are random, the CRA has discovered that targeted audits are better at identifying non-compliance. Therefore, they tend to focus their audits on high-risk areas. Knowing this, taxpayers can reduce the risk of an audit by avoiding red flags. For instance, one red flag is filing an adjustment (T1-ADJ Form). Other types of activities are listed below. Due to the time and hassle involved with an audit, the best advice is to ensure your return is completed properly the first time.

Key Takeaways:

Failing to respond to the CRA if they reach out to you will significantly increase your risk of being audited.
It is important to take care when reporting net losses in a business or rental property for multiple years.
Notable changes in income, your reported income doesn’t match your home’s value or if you sold real estate in the last year might cause the CRA to take a closer look at you and investigate further.

“While some audits are still random, a new approach by the CRA was undertaken following a study that found that random audits detected far fewer cases of significant non-compliance versus targeted ones.”

How to get the biggest tax bang for your RRSP buck – BNNBloomberg.ca

Contributing to your Registered Retirement Savings Plan can pay you back with a nice tax credit, and the deadline for contributions is March 2. However, be aware that these contributions might be handled differently depending on your specific tax situation. Key is your total taxable income, which can be used in conjunction with an online RRSP calculator to determine what tax refund you can expect for funding your plan. And remember, instead of spending your refund from RRSP contributions, you can roll them from into a savings plan to continue accumulating.

“Few may realize that not all RRSP contributions are treated equally, or how making strategic contributions can boost tax savings over the long term.”

Avoid the CRA With TFSAs and RRSPs: Which One Should You Invest in First?

Many Canadians can be confused by the differences between a RRSP, or Registered Retirement Savings Plan, and a TFSA, or Tax-Free Savings Account. For starters, a RRSP merely defers taxes on the funds saved in the account, while funds saved in a TFSA are not taxed. Those funds you save in a RRSP also lower the income you will be taxed on for that year, especially if you’re in a higher income tax bracket. Each type of saving plan has different tax advantages, so consult the regulations or your tax professional to decide which is the best option for your finances.

“Here are some key differences. First, TFSAs allow you to grow your savings or investment tax free, while RRSPs allow for tax-deferred growth. When you withdraw from an RRSP (or RRSP turned RRIF), the amount will be counted as taxable income.”