Tag: tax-deferred

How to invest tax-free in a bitcoin ETF in Canada – MoneySense

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Investment	Investment account	Purchase price	Sale price	Gain	Capital gains tax	After-tax gains
Bitcoin	Non-registered	$23,500	$61,000	$37,500	$3,750	$33,750
Bitcoin ETF	TFSA	$23,500	$61,000	$37,500	$0	$37,500

As you can see, in this hypothetical situation, gains for the tax-free bitcoin ETF come out ahead by $3,750, which is about 11% more than the after-tax gain on bitcoin.

Canadian crypto ETFs

The table below lists all the crypto spot ETFs based in Canada. You can buy bitcoin ETFs (ETFs that invest entirely in BTC), ethereum or ether ETFs (those that invest entirely in ETH) or multi-crypto ETFs (those that invest in BTC and ETH). As of now, BTC and ETH are the only cryptocurrencies available through ETFs. (Figures are current as of Aug. 30, 2024.)

ETF	Ticker symbol	Management expense ratio (MER)	Assets under management (in Canadian dollars)

Bitcoin ETFs
Purpose Bitcoin ETF	BTCC / BTCC.B	1.5%	$2.1 billion
CI Galaxy Bitcoin ETF	BTCX.B	0.77%	$724.7 million
Fidelity Advantage Bitcoin ETF	FBTC	0.69%	$491.6 million
3iQ Coinshares Bitcoin ETF	BTCQ	1.75%	$283 million
Evolve Bitcoin ETF	EBIT	0.75%	$165.5 million
Ethereum (ether) ETFs
Purpose Ether ETF	ETHH / ETHH.B	1.47%–1.49%	$318.7 million
CI Galaxy Ethereum ETF	ETHX.B	0.77%	$385 million
Evolve Ether ETF	ETHR	0.75%	$55.2 million
3iQ Ether Staking ETF	ETHQ	1.97%	$65.8 million
Fidelity Advantage Ether ETF	FETH	0.95%	$18.7 million
Multiple cryptocurrency ETFs
Evolve Cryptocurrencies ETF	ETC	0.85%	$35.4 million
CI Galaxy Multi-Crypto ETF	CMCX.B	1.03%	$3.7 million

U.S. crypto ETFs: Should you invest?

U.S.-based bitcoin ETFs have created quite a buzz in 2024. The Securities and Exchange Commission (SEC) approved the first one in January, almost three years after Purpose Investments launched Canada’s first spot bitcoin ETF.

Numerous American ETF providers now offer bitcoin ETFs, including big investment brands like BlackRock’s iShares, Fidelity and Invesco. Canadian investors can buy these ETFs, too, through their discount brokerage account—just like they would any U.S. stock or ETF. And, yes, these ETFs can be held in registered accounts like the TFSA or RRSP.

Which is better: Canadian or U.S. ETFs?

Truth be told, there’s not much difference between the two. For instance, bitcoin ETFs in both countries hold the same underlying asset: bitcoin. Investors could make a decision based on their preferred parameters.

For example, you may pick the bitcoin ETF with the lowest management expense ratio (MER) or the highest assets under management (AUM), or you could look for the oldest fund—regardless of where it’s based.

If you go with a Canadian ETF, you could have more choices to make: Do you want a Canadian ETF that hedges its currency risk or one that doesn’t? Do you want to hold the ETF in U.S. dollars? The table below lays out the options for one example, the Purpose Bitcoin ETF. (Figures are current as of Sept. 13, 2024.)

ETF (ticker symbol)	Currency	Currency hedge	One-year return
BTCC	Canadian dollar	Yes	117.94%
BTCC.B	Canadian dollar	No	121.15%
BTCC.U	U.S. dollar	No	120.88%

In the right-hand column, you’ll notice there’s a difference in the ETFs’ one-year historical return, even though they all hold bitcoin as their underlying asset. This difference is because of the appreciation or depreciation of the currency in which the ETF holds its bitcoin. In this case, the non-hedged ETF delivered higher returns because it benefited from the appreciation of the U.S. dollar against the Canadian dollar. But there’s no way to have known this one year ago. Like all financial markets, the currency market is largely unpredictable.

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Aditya Nain

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September 18, 2024

Should Canadians keep their investment accounts when retiring abroad? – MoneySense

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Should Canadian non-residents keep their TFSAs?

Tax-free savings accounts (TFSAs) can remain tax-free for a non-resident of Canada—at least from a Canadian perspective.

If a foreign country taxes worldwide income, that would generally include TFSA interest, dividends or capital gains. So, a non-resident may have no tax advantage to keeping a TFSA. These accounts are more likely to be withdrawn and the funds taken abroad.

That said, if the person expects to return to Canada, leaving their TFSA to grow tax-free could be advantageous. If a $50,000 account grows to $150,000 and they re-immigrate to Canada, they would have a $150,000 tax-free account to leverage. If they instead withdrew their TFSA savings, their TFSA room would increase by that amount but their contribution room would not otherwise grow while they were abroad.

What to do with non-registered accounts

Taxable non-registered accounts are generally subject to a deemed disposition when a person leaves Canada. It’s treated as though all the investments were sold on the date of the account holder’s departure, triggering any accrued capital gains and resulting income tax.

If the federal tax owing is more than $16,500 on the person’s final tax return, they can choose to defer payment of the tax. This is done by completing Form T1244, Election, under Subsection 220(4.5) of the Income Tax Act, to Defer the Payment of Tax on Income Relating to the Deemed Disposition of Property.

Since there’s generally no tax advantage to leaving non-registered investments in Canada, it’s common to see non-residents liquidate and reopen accounts abroad. Some investors prefer to leave them in Canada because they have other accounts, like RRSPs, that they cannot liquidate. Others keep their investments in place because they trust the regulatory environment in Canada more than the one in their new country.

Withholding tax on non-registered accounts

If you leave non-registered accounts in Canada, they will be subject to withholding tax at the financial institution. Interest, dividends, and mutual fund or exchange-traded fund (ETF) distributions are generally subject to 15% to 25% tax at source. The rate varies based on the tax treaty between the country of residence and Canada.

This withholding tax represents your final tax obligation to Canada, so you do not need to file a Canadian tax return for this income.

Capital gains on securities are not subject to withholding tax for non-residents. Capital gains on real estate and some other assets are subject to Canadian withholding tax and even require the non-resident to file a tax return.

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Jason Heath, CFP

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January 22, 2024
How to fill out a personal tax return for 2023 – MoneySense
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- The basic personal amount
- The age amount
- Amounts for spouse and dependents
- Adoption expenses
- CPP and/or QPP contributions
- Employment insurance premiums
- Home buyers and home accessibility amounts
- Digital news subscription expenses
- Tuition/education/textbook amounts (complete Schedule 11)
- Medical expenses
- Donations and gifts (fill out Schedule 9)
Part C, Net federal tax:

There are more opportunities for tax reductions in this section, including the common dividend tax credit and the less common minimum tax carry forward on split income and political contributions tax credits. The advance received on the Canada Worker’s Benefit by lower income earners is also recorded here.

Step 6: Refund or balance owing

You’ve reached the final stage where you’ll find out whether you will receive a tax refund or if you owe taxes. If you are self-employed, remember to add payable CPP and EI premiums here. The social benefits repayment on EI or OAS also appears here. Finally, provincial taxes computed on provincial tax forms will be added.

Now, onto the top of the last page of the T1 General form. This is where you enter the income tax deducted from your various slips and claim your final set of applicable tax credits, overpayments and rebates. This can include some provisions that really add up to reduce taxes or provide a bigger refund, including overpayments to the CPP and EI, the Canada Workers Benefit, the Canada Training Credit, the eligible educator school supply tax credit, and so on. Seniors, self-employed and other Canadians subject to making quarterly tax installments will also want to record the money paid to reduce their tax bill. Finally, available refundable provincial tax credits are reported.

If your total credits exceed taxes payable, you may receive a tax refund. Specifically, if you have a negative amount, enter it where indicates you have a refund. If you have a positive amount, enter it on the line that indicates you have a balance owing.

Once you file your tax return, if you owe any taxes, you can pay online using online banking, credit card or pre-authorized debit.

If you’re expecting a tax refund, you should receive it within two weeks if you filed online, eight weeks if you filed by paper, or 16 weeks if you live outside of Canada or file a non-resident tax return. If you sign up for direct deposit, you will receive your refund faster than waiting for a cheque in the mail.

Obviously, every Canadian’s tax situation is unique to them and to every year they file. So, if you’re ever in doubt, it’s a good idea to seek out a qualified accountant or a tax professional who can verify that your tax return is completed properly. Tax software can double-check for any missing information and catch many errors. But it can’t always apply for new provisions you haven’t told it about or represent you in case you are audited by the CRA.

Step 7: Review your NOA

It can take up to two weeks to receive a Notice of Assessment (NOA) if you file electronically. However, it can take up to eight weeks to receive your NOA if you file by paper.
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Sandy Yong

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December 13, 2023
Should you hold onto unused RRSP contributions? – MoneySense
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When you contribute to an RRSP, you must claim the contribution on your tax return for the year. That is, you report the fact that a contribution was made. You do not, however, have to deduct that contribution. You can choose to carry it forward to claim in a future tax year.

On your notice of assessment, there are three primary RRSP-related line items:
1. RRSP deduction limit
2. Unused RRSP contributions previously reported and available to deduct
3. Available contribution room
Your deduction limit means how much you can deduct for the year. Your unused contributions are previous RRSP deposits not yet deducted. These unused contributions reduce your available contribution room. So, if you have a $20,000 RRSP limit, but $5,000 of unused RRSP contributions from the past that you have not yet deducted, your available contribution room is only $15,000.

Your available contribution room is how much you can contribute to your RRSP today. You are allowed to overcontribute by up to $2,000, so there is a bit of a buffer. However, if you exceed that $2,000, you are subject to a penalty of 1% per month.

The $66,000 of unused RRSP contributions you have, Svetla, is pretty significant. It’s one of the larger carry-forwards I have come across. It represents tax deductions and potential refunds you have delayed.

Now, should you hold onto unused RRSP contributions?

You can carry forward your unused RRSP contributions indefinitely. They do not expire at age 71, when you would otherwise have to convert your RRSP to a registered retirement income fund (RRIF). It’s uncommon to carry unused RRSP contributions forward, but sometimes it makes sense, say when you’re going to have a much higher income year the following year. Your RRSP deduction may save you more tax if you save it for that subsequent year.

Svetla, it sounds like you are building up your unused RRSP contributions with the intention of using them to offset the tax on your future RRSP withdrawals. This may not be advantageous.

If you’re working and your income is higher now than when you retire, your RRSP deductions would save more tax today than in the future. Unless you expect your tax rate to be much higher later, you are probably better off claiming the deductions now. Furthermore, even if your tax rate was modestly higher in the future, by waiting several years to get those tax savings, it may not be worth it. If you could save 30% today or 35% in a few years, it may still be better to save 30% today just to get that refund in your pocket to do something else with it, like invest it or pay down debt. This is the “time value of money.”
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Jason Heath, CFP

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December 4, 2023
How is passive income taxed in Canada? – MoneySense

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A corporation’s investment income is generally taxable at between about 47% and about 55%, depending on the corporation’s province of residence. This includes interest, foreign dividends and rental income.

Canadian dividend income earned by a corporation is generally subject to about 38% tax, although dividends paid between two related corporations may be tax-free (i.e. paying dividends from an operating company to a holding company).

For a corporation, capital gains are 50% tax-free—just as they are for individuals—such that corporate tax on capital gains ranges from about 23% to about 27%.

Rental income

Rental income is fully taxable personally and corporately at regular tax rates. So, this means 31% for an Ontario resident with $100,000 of income, for example, and between 47% and 55% corporately depending on the corporation’s province or territory of residence.

The caveat is that only net rental income is taxable. A rental property investor can deduct eligible rental expenses including, but not limited to, mortgage interest, property tax, insurance, utilities, condo fees, professional fees, repairs and related costs.

Income in an RRSP

Registered retirement savings plan (RRSP) accounts are tax-deferred with tax payable on withdrawals. However, there are tax implications to owning investments in your RRSP and other registered retirement accounts.

Foreign dividends are generally subject to withholding tax before being paid into your account or an RRSP investment at rates ranging from 15% to 30% (in the case of a mutual fund or ETF). In a taxable account, this withholding tax does not matter as much because you generally claim a foreign tax credit to avoid double taxation. In an RRSP, the foreign withholding tax is a direct reduction in your investment return with no way to recover the tax. This does not mean you should avoid foreign investments in your RRSP. It is simply a cost of diversifying your retirement accounts.

One exception is U.S. dividends. If you buy U.S. stocks or U.S.-listed ETFs that owned U.S, stocks, there is no withholding tax on dividends paid in your RRSP. If you own an ETF that owns U.S. stocks that trades on a Canadian stock exchange, or you own a Canadian mutual fund that owns U.S. stocks, there will be 15% withholding tax on the dividends of the underlying stocks before they are paid into the fund.

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Jason Heath, CFP

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November 7, 2023