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Tag: Income Tax

  • How long it takes to get your tax refund in Canada—and how to spend your refund – MoneySense

    How long it takes to get your tax refund in Canada—and how to spend your refund – MoneySense

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    10 ways to use your tax refund

    How you choose to spend your tax refund will often boil down to your tax bracket and debt profile, Forward explains, and working with a certified financial planner (CFP) can help you cut through the noise and allocate it wisely. Here are 10 savvy ways to spend your tax refund. 

    1. Pay down credit card debt

    “If you’re carrying credit card balances, you might want to go in that direction to get rid of any of those balances so that you’re not paying interest that you don’t need to pay,” says Forward. Eliminating or significantly reducing credit card debt with your tax refund can save you money in the long run and improve your overall financial health and creditworthiness.

    2. Start an emergency fund

    Building an emergency fund with your tax refund can provide a financial safety net for unexpected expenses and prevent you from going into debt during emergencies. Consider a high-interest savings account (HISA) for your emergency fund to earn interest on your savings and interest on the interest, which is called compound interest. (Check out MoneySense’s compound interest calculator).

    3. Start a first home savings account (FHSA)

    If home ownership is a future goal for you, setting up a first home savings account (FHSA) with your tax refund can kickstart your journey to becoming a homeowner. You’re limited to $8,000 a year and a maximum of $40,000, but it’s a solid first step to owning your first property that only first-timers can take advantage of. 

    4. Open a TFSA

    If you haven’t created any financial goals yet but still want to be intentional with your tax refund, opening a tax-free savings account (TFSA) with your tax refund can help you grow your savings tax-free and provide flexibility for future financial goals.

    5. Make an RRSP contribution

    Contributing to an RRSP with your tax refund can help you save for retirement and reduce your taxable income. Still, Forward explains that this option may be less important if you need the money sooner or already have a pension. “A younger person might not be thinking about RRSPs because they’ve just started their career,” says Forward. “RRSPs make more sense when you’re in your highest tax bracket, and you can get the most bang for your buck.”

    6. Make a prepayment on your mortgage

    If you have a mortgage with a prepayment privilege, you may use your CRA tax refund to make a prepayment on your mortgage. It goes directly toward your principal owing, so you can reduce the overall interest you pay and shorten your mortgage term. Most lenders limit how many times you can pre-pay each year, but maxing out allowable prepayments can save you a lot of interest in the long run.

    7. Pay down your student loan

    If you’ve got any lingering student debt, using your tax refund to pay down student loans can help you reduce your debt burden and save on interest payments over time. For more tips, check out “Student Money: “How to pay for school and have a life—a guide for students and parents.”

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    Alicia Tyler

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  • Should you max out your RRSP before converting it to a RRIF? – MoneySense

    Should you max out your RRSP before converting it to a RRIF? – MoneySense

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    I am guessing you have downsized your home to move to a condo and now have money to contribute more to your registered retirement savings plans (RRSPs) as a result. First, we will start with a quick rundown of how RRSP to RRIF conversion works.

    Converting an RRSP to a RRIF

    A registered retirement income fund (RRIF) is the most common withdrawal option for RRSP savings. By December 31 of the year you turn 71, you need to convert your RRSP to a RRIF or buy an annuity from an insurance company. So, the conversion must take place not by his June birthday, Chris, but by December 31, 2025. You have a little more time than you might think.

    A RRIF is like an RRSP in that you can hold cash, guaranteed investment certificates (GICs), stocks, bonds, mutual funds, and exchange traded funds (ETFs). In fact, when you convert your RRSP to a RRIF, the investments can stay the same. The primary difference is you withdraw from it rather than contributing to it. 

    Withdrawing from a RRIF

    RRIFs have minimum withdrawals starting at 5.28% the following year if you convert your account the year you turn 71. This means you have to take at least 5.28% of the December 31 account value from the previous year as a withdrawal. Those withdrawals can be monthly, quarterly or annually, as long as the minimum is withdrawn in full by year’s end. Each year, that minimum percentage rises. 

    There is no maximum withdrawal for a RRIF. Withdrawals are taxable, though. If you are 65 or older, you can split up to 50% of your withdrawal with your spouse by moving anywhere between 0% and 50% to their tax return when you file. You do this to minimize your combined income tax by trying to equalize your incomes.

    You can base your withdrawals on your spouse’s age and if they are younger, the minimum withdrawals are lower. 

    Contributions before you convert

    If you have funds available from your condo downsize, Chris, you could contribute to your husband’s RRSP. He can contribute until December 31, 2025. If you are younger than him, he can even contribute to a spousal RRSP in your name until December 31 of the year you turn 71, whereby he gets to claim the deductions, but the account belongs to you with future withdrawals made by you.

    However, just because you have money to contribute, it doesn’t mean you should. Say your husband has $10,000 of RRSP room and his taxable income from Canada Pension Plan (CPP), Old Age Security (OAS), investments, and other sources is $50,000. He could contribute and deduct that $10,000 to reduce his taxable income to $40,000. In most provinces, the tax savings would be about 20%. His tax refund would be about $2,000.

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    Jason Heath, CFP

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  • Common tax filing mistakes and how to avoid them

    Common tax filing mistakes and how to avoid them

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    Common tax filing mistakes and how to avoid them – CBS News


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    The tax filing deadline for most Americans is April 15. Pratik Patel, head of family wealth strategies for BMO Family Office, joined CBS News with some helpful advice to avoid common filing mistakes.

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  • Expert on maximizing your tax refund

    Expert on maximizing your tax refund

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    Expert on maximizing your tax refund – CBS News


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    As the tax season progresses, the IRS reports having received over 71.5 million tax returns, already issuing more than 49 million refunds to Americans. With the average refund amounting to $3,109, CBS News business analyst Jill Schlesinger offers advice on how Americans can make the most of their tax refund.

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  • Income Tax Deadline Fast Facts | CNN

    Income Tax Deadline Fast Facts | CNN

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    CNN
     — 

    Here’s a look at the annual income tax filing deadline in the United States. April 15, 2024, is the deadline to file 2023 income tax returns.

    In fiscal year 2022, the IRS amassed more than $4.9 trillion in gross tax collections.

    (Source: Center on Budget and Policy Priorities, FY 2023)
    Medicare, Medicaid, CHIP, marketplace subsidies 24%
    Social Security 21%
    National Defense 13%
    Economic security programs 8%
    Benefits for veterans & federal retirees 8%
    Interest on debt 10%
    Education 4%
    Transportation 2%
    Natural resources and agricultrue 1%
    Science and medical research 1%
    Law enforcement 1%
    International 1%
    All other 4%

    1862 – During the Civil War, the IRS is born when President Abraham Lincoln and Congress create the Commissioner of Internal Revenue and enact an income tax to pay war expenses. The first income tax levies 3% on incomes between $600 and $10,000 and 5% on anything over $10,000. This income tax lasts until 1872.

    1895 – The Supreme Court rules in Pollock v. Farmers’ Loan and Trust Co. that taxing incomes uniformly throughout the United States is unconstitutional.

    1913 – The 16th Amendment is ratified by the states, giving Congress the authority to enact an income tax. Congress also introduces the first 1040 form and levies a 1% tax on personal incomes over $3,000 with 6% surtax on incomes of more than $500,000.

    1954 – The tax filing deadline is moved from March 15 to April 15, to give taxpayers more time to prepare their returns.

    January 3, 1996 – Congress enacts the Taxpayer Bill of Rights to ensure relief from overzealous collection efforts on the part of IRS personnel.

    March 20, 2020 – Secretary of the Treasury Steven Mnuchin tweets that tax day is moving from April 15 to July 15 due to the coronavirus pandemic.

    March 17, 2021 – The IRS announces the filing deadline has been moved from April 15 to May 17, to allow filers more time to navigate tax situations complicated by the coronavirus pandemic.

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  • Don’t get stuck on financial advice that doesn’t ring true – MoneySense

    Don’t get stuck on financial advice that doesn’t ring true – MoneySense

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    Dividends are after-tax profits a company distributes among its shareholders, typically every quarter, and can be paid in cash or a form of reinvestment.

    Heath said a company that pays a high dividend reinvests less of its profit into growth, potentially losing out on opportunities to up its market value. In Canada, stocks with high dividends come from a narrow slice of the stock market—banks, telecoms and utilities. 

    “Ideally, an investor should consider a combination of stocks with high and low dividends to have a well-diversified portfolio,” he said.

    Contribute to RRSP, save on taxes

    “There’s a lot of taxpayers, investment advisers and accountants who really promote the concept of putting as much into your (registered retirement savings plan) as you absolutely can,” said Heath.

    As a financial planner, he thinks the contrary. Heath says using RRSP contributions to get the biggest tax refund possible is not necessarily the best approach for people in low tax brackets and can hurt them in the long run when they withdraw those savings at a higher tax bracket in retirement.

    “Sometimes, it’s OK to pay a little bit of tax, as long as you’re paying at a low tax rate,” he said.

    Instead, tax-free savings account (TFSA) contributions could be better for someone with a low income. 

    It can be wise to use the low tax bracket by taking RRSP withdrawals early in retirement, even though it might feel good to withdraw only from your TFSA or non-registered savings and keep your taxable income low. 

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    The Canadian Press

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  • How to cope with the RRSP-to-RRIF deadline in your early 70s – MoneySense

    How to cope with the RRSP-to-RRIF deadline in your early 70s – MoneySense

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    Unless taxpayers make a request, there are no withholding taxes on the minimum RRIF withdrawal. This can result in the Canada Revenue Agency (CRA) requesting quarterly tax installments in the future: after filing a tax return where net taxes owing (taxes owing less the taxes deducted at source) exceed $3,000. 

    If this looks to be an annual event, it’s wise to pay the tax installments, as the CRA will charge installment interest on the amounts outstanding or paid late, Ardrey says. “That rate of interest is currently at 10%.” 

    (Of course, if you overpay installments, the CRA will not pay you any interest.)

    Withholding taxes is another consideration. These are not the same as your final tax bill (after you die), Birenbaum says, but instead are “a default percentage the government takes upfront to ensure they get (at least some) tax on RRSP or RRIF withdrawals.” If you’re in your 60s and have ever taken money from your RRSP, you know you pay 10% withholding tax for withdrawals of $5,000 or less, 20% between $5,001 and $15,000, and 30% over $15,000. Amounts are higher in Quebec.

    But the rules are different for RRIFs; there are no withholding taxes required on minimum withdrawals. Outside Quebec, withholding taxes are the same for RRSPs, says Birenbaum. For systematic withdrawals, withholding taxes are based not on each individual payment but on the total sum requested in the year that exceeds the minimum mandated withdrawal. 

    You don’t necessarily want to pay the least in withholding taxes, as many may know from making RRSP withdrawals in their 60s. You can always request paying a higher upfront withholding tax on RRIF withdrawals, if you expect to owe more at tax-filing time due to other pension and investment income. You can also set aside some RRIF proceeds in a savings account dedicated to future tax liabilities. 

    Do RRIFs trigger OAS clawbacks?

    Another complication of extra RRIF income is that it can trigger clawbacks of Old Age Security (OAS) benefits. If your total income exceeds $90,997, OAS payments will be clawed back by $0.15 for every dollar over this amount until they reach zero.  

    Income splitting with a RRIF

    Fortunately, there are ways to minimize these tax consequences. If you are one half of a couple, you can benefit from a form of pension income splitting: RRIF income can be split with a spouse on a tax return when appropriate, providing the taxpayer is over 65. An income split of $2,000 can provide a pension tax credit for the spouse, which could be the difference between being impacted by the OAS clawback or not.

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    Jonathan Chevreau

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  • “Where do we pay income tax if we retire abroad?” – MoneySense

    “Where do we pay income tax if we retire abroad?” – MoneySense

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    In the case of Mexico, Marianna, a taxpayer is considered a resident of Mexico if they have a permanent home available to them in Mexico. If they have homes in both Mexico and Canada, the location of their centre of vital interests—their personal and economic ties—must be considered. This is a condition of the Canada–Mexico Income Tax Convention, a tax treaty that is like many others that Canada has entered into with other countries to establish tax rules between them. 

    The courts typically refer to the residence article of the OECD Model Tax Convention when defining the centre of vital interests:

    “If the individual has a permanent home in both Contracting States, it is necessary to look at the facts in order to ascertain with which of the two States his personal and economic relations are closer. Thus, regard will be had to his family and social relations, his occupations, his political, cultural, or other activities, his place of business, the place from which he administers his property, etc. The circumstances must be examined as a whole, but it is nevertheless obvious that considerations based on the personal acts of the individual must receive special attention. If a person who has a home in one State sets up a second in the other State while retaining the first, the fact that he retains the first in the environment where he has always lived, where he has worked, and where he has his family and possessions, can, together with other elements, go to demonstrate that he has retained his centre of vital interests in the first State.”

    If you sell your home in Canada or rent it out to a tenant, and establish closer ties to Mexico, you will likely become a non-resident of Canada. There may be tax implications for assets you own when you leave or are deemed to depart from Canada, Marianna. Assets like non-registered investments will be subject to a deemed disposition (a notional sale) and this may trigger capital gains tax if the assets have appreciated in value. Other assets, like pensions and investments, will be subject to withholding tax on income after you leave. 

    You ask specifically about monthly pensions, Marianna. Registered pension plan (RPP) periodic payments like a monthly defined benefit (DB) pension are subject to 15% Canadian withholding tax for a Mexican resident. The same 15% rate applies to Canada Pension Plan (CPP), Old Age Security (OAS) and registered retirement savings plan (RRSP) or registered retirement income fund (RRIF) periodic payments. A lump sum withdrawal from an RRSP or RRIF is subject to a higher 25% withholding tax. 

    Tax on non-registered investments is limited to dividends or trust (mutual fund or exchange-traded fund) distributions. The withholding tax rate is 15%. Most Canadian interest earned by a Mexican resident is not subject to withholding tax in Canada.

    Capital gains on non-registered investments earned by a non-resident are not subject to Canadian withholding tax either. 

    If your Canadian income is relatively low, you may benefit from electing under section 217 of the Income Tax Act to file a Canadian tax return voluntarily. The tax would be calculated on your qualifying Canadian income. Qualifying income includes CPP, OAS, pensions, RRSP/RRIF withdrawals, and a few other sources of Canadian income. If you owe less tax than the initial 15% or 25% tax withheld, you can get a refund. 

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    Jason Heath, CFP

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  • What new bare trust tax filing rules mean for Canadians – MoneySense

    What new bare trust tax filing rules mean for Canadians – MoneySense

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    What is a bare trust?

    The Income Tax Act does not specifically define a bare trust, Chander. The Canada Revenue Agency (CRA) says: “A bare trust for income tax purposes is a trust arrangement under which the trustee can reasonably be considered to act as agent for all the beneficiaries under the trust with respect to all dealings with all of the trust’s property.”

    Essentially, a bare trust may exist when someone holds legal title to an asset, but some or all of the asset technically belongs—meaning it beneficially belongs—to someone else. Unlike formal trusts that are generally established with a lawyer, a bare trust is informal and can result simply from adding someone’s name to an account or to the ownership of a real estate property.

    Common bare trust situations

    Some common examples of bare trusts are:

    • a parent co-signing a mortgage for their child and going on the title
    • a parent or grandparent who has an account for a minor child or grandchild
    • an adult child with joint ownership of their parent’s bank account, investments or real estate for estate planning purposes

    Who has to file a trust tax return?

    The trustees of the trust need to file a tax return for it. The trustees are the people who own the assets on behalf of others. So, in the case of a parent co-signing a mortgage, it is the parent who needs to file. In the case of an account for a minor child or grandchild, it is the parent or grandparent who owns the account. In the case of an adult child who holds assets jointly with their elderly parent, it is the child who needs to file.

    Only trusts with assets of $50,000 or more are required to file.

    Required tax filings

    Bare trusts are required to file T3 Trust Income Tax and Information Returns for the 2023 tax year. A bare trust may not need to submit as much information as other trusts. The CRA has provided this guidance (see section 3.3) to Canadians:

    Step 1: Identification and other information

    • When using our online services, identify the type of trust as Bare Trust by selecting “code 307, Bare Trust” and provide the trust creation date in the appropriate field.
    • If this is the first year of filing a trust return, send us a copy of the trust document, unless such information or document has been previously submitted. See 5.3 for more information on what documents may be required.
    • Where applicable, provide a response and information related to whether the trust is filing its final return (and if so, provide the date on which the trust has been terminated or wound up in the year). Provide a response and information related to applicable questions on page two.

    Step 5: Summary of tax and credits

    • Complete the last page including the parts “Name and address of person or company who prepared this return” and “Certification.”

    For bare trusts, the remaining parts of the T3 Return can be left blank. All income from the trust property for a taxation year should be reported on the beneficial owner’s return of income.

    Complete all parts of Schedule 15.

    Choosing a name for the trust

    A trust must have a name so it can be identified by the CRA. The CRA gives this example: For a bare trust for which “Ms. Andrews” is the beneficiary, a name like “Ms. Andrews trust” may be appropriate. If there are multiple beneficiaries, the CRA suggests putting the names in alphabetical order based on last name, with the word “trust” at the end.

    How to get a CRA trust number

    A trust also needs a trust number. This number is similar to a social insurance number in that it helps the CRA identify the taxpayer—which in this case is the trust.

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    Jason Heath, CFP

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  • Congress continues to make the tax code ridiculously hard to understand

    Congress continues to make the tax code ridiculously hard to understand

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    My income tax is due in a few weeks!

    I hate it.

    I’m pretty good at math, but I no longer prepare my own taxes. The form alone scares me.

    I feel I have to hire an accountant, because Congress, endlessly sucking up to various interest groups, keeps adding to a tax code. Now even accountants and tax nerds barely understand it.

    I can get a deduction for feeding feral cats but not for having a watchdog.

    I can deduct clarinet lessons if I get an orthodontist to say it’ll cure my overbite, but not piano lessons if a psychotherapist prescribes them for relaxation.

    Exotic dancers can depreciate breast implants.

    Even though whaling is mostly banned, owning a whaling boat can get you $10,000 in deductions.

    And so on.

    Stop! I have a life! I don’t want to spend my time learning about such things.

    No wonder most Americans pay for some form of assistance. We pay big—about $104 billion a year. We waste 2 billion hours filling out stupid forms.

    That may not even be the worst part of the tax code.

    We adjust our lives to satisfy the whims of politicians. They manipulate us with tax rules. Million-dollar mortgage deductions invite us to buy bigger homes. Solar tax credits got me to put panels on my roof.

    “These incentives are a good thing,” say politicians. “Even high taxes alone encourage gifts to charity.

    But “Americans don’t need to be bribed to give,” says Steve Forbes in one of my videos. “In the 1980s, when the top rate got cut from 70 percent down to 28 percent…charitable giving went up. When people have more, they give more.”

    Right. When government lets us live our own lives, good things happen.

    But politicians want more control.

    American colonists started a revolution partly over taxes. They raided British ships and dumped their tea into the Boston Harbor to protest a tax of “three pennies per pound.” But once those “don’t tax me!” colonists became politicians, they, too, raised taxes. First, they taxed things they deemed bad, like snuff and whiskey.

    Alexander Hamilton’s whiskey tax led to violent protests.

    Now Americans meekly (mostly) accept new and much higher taxes.

    All of us suffer because politicians have turned income tax into a manipulative maze.

    We waste money and time and do things we wouldn’t normally do.

    Since I criticize government, I assume some IRS agent would like to come after me.

    So, cowering in fear, I hire an accountant and tell her, “Megan, don’t be aggressive. Just skip any challengeable deduction, even if it means I pay more.”

    I like having an accountant, but I don’t like having to have one. I resent having to pay Megan.

    I once calculated what I could buy with the money I pay her. I could get a brand-new motorcycle. I could take a cruise ship to Italy and back every year.

    Better still, I could give my money to charity and maybe do some good in the world. For the same amount I spend on Megan, I could pay four kids’ tuition at a private school funded by SSPNYC.org.

    Or I could invest. I might help grow a company that creates a fun product, cures cancer, or creates wealth in a hundred ways.

    But I can’t. I need to pay Megan.

    What a waste.

    COPYRIGHT 2024 BY JFS PRODUCTIONS INC.

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    John Stossel

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  • When are TFSAs and RRSPs actually taxable? – MoneySense

    When are TFSAs and RRSPs actually taxable? – MoneySense

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    TFSA day trading: Do you pay tax?

    Tax-free savings accounts (TFSAs) are mostly tax-free. When you buy and sell an investment for a profit, that is generally tax-free inside a TFSA, regardless of the type of investment. 

    One exception could be if you are day trading in your TFSA. If you are engaging in frequent trading activity, there is a risk your profits could become taxable as business income. For most long-term, buy-and-hold investors, this is not an issue. There’s no specific guideline about what constitutes day trading in your TFSA, but factors like the frequency of trades or the holding periods, for example, could indicate you are using the account this way.

    Taxes on U.S. stocks in a TFSA

    U.S. stocks held in a TFSA are subject to 15% withholding tax on U.S. dividend income. Withholding tax would apply to other foreign stocks held in a TFSA, with rates starting at 15%, depending on the country. Only Canadian stocks are not subject to withholding tax on their dividends inside a TFSA. 

    Does this mean you should only hold Canadian stocks in your TFSA? Not necessarily. If your TFSA is your primary investment account, or a big part of your overall investments, you may need to hold non-Canadian stocks to have proper diversification. If it is a small part of your overall portfolio, you may be able to have a bias towards Canadian stocks in your TFSA, but that may or may not be the best investment strategy depending on the value and type of your other investment accounts. Canada is a small part of the global stock market and has little exposure to sectors like technology and health care, so foreign stocks help diversify and can increase risk-adjusted returns. 

    Can you avoid foreign withholding tax by holding Canadian mutual funds or exchange traded funds (ETFs) in your TFSA, Tawheeda? Unfortunately, no. They, too, are subject to withholding tax on foreign dividend income, so even though you will not see withholding tax on your TFSA statement, the mutual fund or ETF itself would have withholding tax before receiving dividends from foreign stocks. 

    TFSA withdrawals are always tax-free. However, if you overcontribute to your TFSA, in excess of your TFSA limit, you may be subject to a monthly penalty tax, plus interest. A similar penalty applies if you overcontribute to your registered retirement savings plan (RRSP).

    When do you pay tax on an RRSP?

    When you buy and sell for a profit in your RRSP, the proceeds are not generally subject to tax. RRSPs are generally only taxable when you make withdrawals. Unlike your TFSA, business income treatment does not generally apply to day trading in your RRSP. One exception could be if you are trading non-qualified investments in your RRSP, which would be uncommon. Qualified RRSP investments include things like cash, guaranteed investment certifications (GICs), bonds, qualifying mortgages, stocks, mutual funds, ETFs, warrants and options, annuity contracts, gold and silver, and certain small business investments.

    How are dividends taxed in an RRSP?

    U.S. dividends may or may not have withholding tax in your RRSP, Tawheeda. If you own U.S. stocks directly in your RRSP, there will be no withholding tax. If you own U.S. stocks through a U.S. ETF, you will not have withholding tax, either. However, if you own U.S. stocks indirectly through a mutual fund or an ETF listed on a Canadian stock exchange, that mutual fund or ETF will be subject to U.S. withholding tax on any dividends before it receives them, even though you will not notice any withholding tax on the dividends or distributions you personally receive from the fund. You see, a Canadian mutual fund or ETF is itself considered a non-resident of the U.S., subject to 15% withholding tax. The account the fund is held in does not matter. The withholding tax will still apply.  

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    Jason Heath, CFP

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  • How much should I charge for freelance services? – MoneySense

    How much should I charge for freelance services? – MoneySense

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    Pricing your services can be tricky, even for experienced freelancers. Let’s go over the factors to consider when deciding your rates. There are three parts to this: understanding the market you’re in, determining your income needs and your business’s break-even point and, lastly, setting your price using cost-based or value-based pricing.

    1. Understanding the market

    The first step in finding out how much you should charge for freelance services is to do market research. You’ll want to determine the following: 

    • Competitors: Who are the other players (businesses or freelancers) that offer the same or similar services in your industry or region? 
    • Customers: Who are your competitors targeting? Who are their customers, where are they, and what specific products or services are they buying?
    • Pricing: How are your competitors pricing their services? Check their websites to see whether they use hourly or project-based pricing. What factors might play a role in their pricing—for example, do they provide unique value or services, do they have lots of experience, or do they charge below-market prices to attract customers? 

    Then, map out where you fall into this mix, and use your research as a benchmark when making your own decisions. When doing this analysis, you can figure out your place in the market using the popular S.W.O.T. method: find out the strengths, weaknesses, opportunities and threats in your business environment (your geographical region or your competition online, for example). This will also help you compare your offerings to those of other vendors. 

    If you’re a freelance event photographer, for example, and you offer photos but not videos, your service packages should be priced lower than those of freelancers who offer both. This could help you attract customers who are looking for more affordable rates. And, you could also expand your services to include video in the future.

    By the end of your research, you should be able to answer some questions about how much you will invoice as a freelancer, such as: 

    • What are the going rates for services in your industry?
    • Will you charge hourly for your services, or will your pricing be project-based, or both?
    • If you are charging for projects and/or packages, what services will they include?
    • Will you have different bundles or packages at different price points, based on your costs and the value you provide to the customer? 

    How much to invoice as a freelancer 

    Now, you need to determine the dollar amount you should charge for your freelance services. There are two parts to this: a personal needs assessment and calculating your business expenses.

    1. Personal needs assessment

    How much will you need to pay yourself? Understanding your personal needs (rent payments, utilities and other necessities) versus wants (discretionary spending on food, entertainment or hobbies) will help you determine what you are able to pay yourself and what you are willing to sacrifice until your business grows. 

    Let’s say your needs require that you earn at least $1,000 a month from freelancing in addition to your other sources of income. When determining your personal payout, you need to consider your income tax bracket as well—new freelancers often forget about this. If your needs cost you $1,000 per month, and you’re roughly in a 30% tax bracket, you’ll need to pay yourself at least $1,300 from the business. (Read more about tax brackets, how they work in Canada and find out how much taxes you may have to pay.)

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    Shalini Dharna Kibsey, CPA

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  • Work-from-home tax credit: What Canadians can claim for 2023 – MoneySense

    Work-from-home tax credit: What Canadians can claim for 2023 – MoneySense

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    A tax deduction is often better than a tax credit because it reduces your taxable income. When you decrease your taxable income, you may save 15% to 54% tax depending on your income and where you live.

    What can you claim for working from home in 2023?

    The Canada Revenue Agency (CRA) introduced a temporary flat-rate home-office expense deduction for the 2020, 2021 and 2022 tax years. Last year, a taxpayer could claim $2 per day worked from home, up to a maximum of $500, as a deduction.

    This simplified method is no longer available for 2023. The detailed method for claiming home-office expenses now applies for all eligible employees, Imtiaz, so you can still claim a deduction if you qualify. In order to be eligible to claim home-office expenses, an employee must:

    Visit the CRA’s website for detailed eligibility criteria.

    How to claim the work-from-home expense deduction for 2023

    Some employers may need a reminder to provide Form T2200s to their employees for 2023. So, if you think you qualify and do not receive the form along with your T4 slip, it may be worth raising this with your employer.

    You can claim a pro-rated percentage of the following expenses:

    • Electricity
    • Heat
    • Water
    • Utilities portion (electricity, heat, and water) of your condominium fees
    • Home internet access fees
    • Maintenance and minor repair costs
    • Rent paid for a house or apartment where you live

    You need to determine your workspace use by calculating the size of your workspace relative to all finished areas of your home. This percentage applied to your eligible expenses becomes your home-office expense deduction, Imtiaz.

    When sharing a workspace

    If the workspace is a shared area used for work and personal use, or if it is shared by more than one person who works from home, you may need to further reduce the eligible percentage of your home-office expenses that can be claimed. Visit the CRA’s website for information on how to determine the type and size of your workspace.

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    Jason Heath, CFP

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  • How to model retirement income in Canada – MoneySense

    How to model retirement income in Canada – MoneySense

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    Mike, you are at risk of leaving too much money after you die, and it may not be until you reach age 70, 75 or 80 when you realize it. You could think, “I have all this money, and only so much time and energy left. If I had known, I would have done more.” 

    Lucky for you Mike, you are already thinking about it. Now, it is time for you to engage in some serious play and run some “what ifs” with the projection model you created. Experiment by finding the maximum you can spend each year until your deaths, and then do the same thing again but to the end of your expected health span, when you are too old to enjoy yourself.

    When the money runs out in the model you created, find out the value of your house and farm. Would you sell these to support your retired lifestyle? How much money, if any, do you want to leave your beneficiaries? Play with a few different combinations to see what spending patterns are possible.

    Don’t worry about how you will draw any funds, taxes or other planning strategies. Just get a good sense of what is possible for you.

    Then you will know how much you can spend each year. It’s up to you to decide how you are going to spend or gift your money, which is easier said than done.

    Don’t worry if you can’t identify future plans. Instead, make this year a good one, and do the same next year. If you string together a good year after another and after another, and so on, over your lifetime, you will have lived a full and rich life, with no regrets. Once you have a good sense of how you want to live in your retirement, that’s when you can apply tax and planning strategies. 

    How to model out retirement income

    Mike for some people, the risk of dying with too much money is all-too real. For all the emphasis Canadians place on investments and on tax and planning strategies, there’s very little on the important thing: maximizing life satisfaction.

    Using the model as I have described will give you a glimpse into your future, so you can make confident spending decisions today. Updating the model annually will keep your assumptions honest, keep you on track and allow you to enjoy yourself without feeling guilty spending your money.

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    Allan Norman, MSc, CFP, CIM

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  • How to get your tax refund faster and other must-know filing tips

    How to get your tax refund faster and other must-know filing tips

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    How to get your tax refund faster and other must-know filing tips – CBS News


    Watch CBS News



    Tax season is officially underway. The Internal Revenue Service says they’re anticipating more than 146 million individual tax returns to be filed by the April 15 deadline. CBS News business analyst Jill Schlesinger shares some useful tax tips for filers.

    Be the first to know

    Get browser notifications for breaking news, live events, and exclusive reporting.


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  • How are bonuses taxed in Canada? – MoneySense

    How are bonuses taxed in Canada? – MoneySense

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    Maybe that money is already spoken for. Many Canadians are struggling financially right now, so a bonus or salary increase might simply help cover the rising cost of living or create a bit of breathing room in your budget. But if you’re keeping up with monthly obligations like rent, mortgage payments, household bills and loans, you may have some flexibility in how you allocate those bonus bucks—including saving towards your financial goals.

    “Year-end bonuses are very exciting and tempting,” says Reni Odetoyinbo, a financial influencer in Toronto who shares money tips on her site, Reni, The Resource. “I like to look at all my goals for the year and see if anything needs topping up to decide how I spend the bonus.” (Read her Q&A with MoneySense.)

    Are work bonuses taxed?

    Before you start divvying up your dollars: Know that bonuses are taxed like your other wages, so you may not receive as much as you think. Your employer will also deduct Canada Pension Plan (CPP) contributions and employment insurance (EI) premiums, unless you’ve reached your CPP and EI maximums for the year. 

    If you don’t need that bonus money right away, you could have your employer transfer it directly into your registered retirement savings plan (RRSP), if you have RRSP contribution room. No federal or provincial taxes will be withheld.

    “Of course, the RRSP money is likely going to be stored away for a longer term, so if you have some more immediate needs, these are important to consider,” says Odetoyinbo. On that note, below are five ideas for how to spend a work bonus, plus links to tips and resources for each one.

    Bonuses, RRSPs and taxes

    Most employees get their bonus in February, a detail that matters when it comes to filing your taxes. “Employment income—salary or bonus—is taxable when paid,” says Jason Heath, a Certified Financial Planner and MoneySense columnist. “So, a February 2024 bonus is taxable in 2024, even though it may be tied to 2023 performance by the employee or the company.” 

    This can create an unfortunate mismatch, Heath notes. “Asking your employer to deposit your bonus directly to your RRSP can result in your full pre-tax bonus being invested right away. But watch out. If you do this in the first 60 days of the year, you get to claim the deduction on your previous year’s tax return. But the bonus is taxable in the year that it is received. Unless you do this every year, you could end up with a tax refund one year, but a balance owing the next year.”

    Using this year’s bonus as an example, Heath says that if you direct your February 2024 bonus into your RRSP pre-tax, you’ll get an RRSP receipt for 2023. This could result in a tax refund for 2023; however, the income will be taxable in 2024, with no tax withheld. 

    1. Pay off credit card bills and other high-interest debts

    If you have high-interest debt on credit cards or a line of credit, paying it down with a lump sum could save you hundreds of dollars in interest payments, notes Odetoyinbo. “A payment to your 19.99% credit card debt is one of the best returns you can get.”

    If you’re carrying a balance on one or more cards, use proven strategies to pay it down, such as switching to a low-interest credit card or balance transfer credit card—both can help slow the accumulation of interest. You could also explore consolidating your debt into a single payment plan. 

    2. Pay down your student debt

    Do you still have student debt hanging over your head? If you aren’t carrying any debts that charge higher interest (like credit card debt), consider putting your bonus toward your student loan. For the 2021–2022 academic year, the average Canada Student Loan balance at the time of leaving school was $15,578, according to Employment and Social Development Canada. It also notes that borrowers typically repay the money over nine and a half years—imagine slashing that by a year or two. 

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    Jaclyn Law

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  • Can you file multiple years of income taxes together in Canada? – MoneySense

    Can you file multiple years of income taxes together in Canada? – MoneySense

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    That’s important in an increasingly digital world. Hard copy does matter. For example, if you’ve closed bank accounts, says Wall, you may not be able to get the statements you need to file past years’ tax returns, especially if you don’t have the receipts or invoices.

    If you just have a T4 and no claims for discretionary expenses like childcare, medical, moving expenses, donations or tuition fees, your documentation requirements will be simpler, but if you have those expenses to claim, you’ll need some kind of documented proof.

    This is important because the CRA says all documents must be legible and reproducible. Wall says in some cases the documents, like medical expenses or receipts for a small business, don’t have to be original copies. It can be a scan—CRA is increasingly asking for electronic receipts. However, credit card or bank statements are not valid for these claims—you need to keep the receipts.

    “You can go ahead and file a return and if you’re never audited, you might be fine,” he says. “But if you file the return and it gets audited, and you can’t produce the receipts, then they will deny those expenses, and could turn a refund into a balance due.” He says that usually, when someone is filing multiple years that are late, your probability of getting audited increases, especially if you’re self-employed. Filing late in those cases will attract those late filing and potentially gross negligence penalties to add to the tax burden.

    Can you avoid interest on tax returns owed for multiple years?

    Penalties and interest happen when you file late and owe the government money. They can also happen after an audit, when CRA disagrees with your claims.

    In some cases, it is possible to plead “hardship” under the Taxpayer Relief Program. For example, if an extraordinary circumstance caused you to miss filing a return, such as a death in the family, serious illness or other serious circumstance. Certain delays in resolving an audit or incorrect information provided by the CRA may have caused you to be unable to fulfill your obligations, and you can apply for relief in those cases too. File the Form RC4288, Request for Taxpayer Relief Cancel or Waive Penalties and Interest to request relief. Sometimes financial hardship can be used as a reason for a relief request, but detailed records must be submitted.

    But if you want to get prosecution relief, possible penalty relief and partial interest relief, you can take advantage of the Voluntary Disclosure Program. You have to voluntarily come forward to fix any mistakes in your tax filings before the CRA knows or contacts you about it. The program is open to any taxpayer, from individuals, employers, and corporations to partnerships and trusts.

    You will have to pay the taxes owed plus either the full or partial interest, but you may receive some form of relief, based on the discretion of the CRA.

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    Renée Sylvestre-Williams

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  • How to file your taxes when you own ETFs – MoneySense

    How to file your taxes when you own ETFs – MoneySense

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    Both types of investments are subject to tax in your taxable accounts, like non-registered or corporate accounts. Tax-free savings accounts (TFSAs) are tax-free, so you don’t receive tax slips for TFSA investments, nor do you report the income or capital gains on your tax return.

    Does the ACB of TFSA investments matter?

    You ask about calculating the adjusted cost base (ACB) in your TFSA. Knowing the ACB is necessary in taxable accounts, but not in your TFSA. The ACB determines whether you’re selling an investment for a capital gain or a capital loss. Your brokerage often calculates the ACB for you, representing your purchases of the investment, including reinvested dividends or other adjustments.

    Mutual funds are typically structured legally as trusts, so investors in taxable accounts get T3 Statement of Trust Income Allocations and Designations slips. Some mutual funds are structured as corporations, so investors instead receive T5 Statement of Investment Income slips.

    In this respect, ETFs are similar to mutual funds, Barbara. Typically, they are structured as trusts and come with T3 slips, though some are corporations that come with T5 slips.

    When are T3 slips typically issued?

    Mutual fund and ETF issuers have until March 31 to provide T3 slips to investors, which is one of the challenges of investing in these funds. With the March 31 deadline, some investors don’t receive their T3 slips until April. So, it may be tough to file your tax return in March, unless you’re open to the possibility of filing an adjustment to your tax return for any late T3 slips.

    Mutual fund and ETF trusts generally flow through all of their income and capital gains to investors. This means that if the fund buys and sells underlying assets for a capital gain, that capital gain is reported by the investor and taxable to them. This can result in a capital gain even if the investor has not sold any of their units of the fund.

    For a Canadian investor, Barbara, one key distinction between mutual funds and ETFs is that ETFs can be purchased on a foreign stock exchange. Mutual funds are domiciled in Canada and are in Canadian dollars. A Canadian investor can buy ETFs that trade in the U.S. in U.S. dollars. This introduces foreign-exchange calculations to the taxation of these investments in taxable accounts.

    How U.S.-dollar ETFs are taxed in Canada

    When you sell a U.S.-dollar ETF, you need to report the sale in Canadian dollars based on the prevailing exchange rate at that time. You also need to calculate your cost in Canadian dollars based on the exchange rate—or rates—at the time of purchase. This can make for a little more work, especially if your ETF distributions are being reinvested.

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    Jason Heath, CFP

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