TFSA or RRSP?


August 17th, 2012

One common tax question I get is this: should I put money into a Tax Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP)?  There is of course no easy answer, and I won’t even pretend to answer that question in a blog post.  It’s best answered on an individual basis.

There are some things you just can’t make a TFSA do that an RRSP does quite nicely, and there are some problems that an RRSP can create that a TFSA will never do to you.  So the best place to start is to learn the differences between the two plans.  If you want some basic advice, start off here:

http://www.tfsa.gc.ca/tfsarrsp-eng.html

I’m going to say one more thing:  if you think you may someday qualify for what is called the Guaranteed Income Supplement (GIS) from Old Age Security, consider investing through the TFSA.  Why?  Because withdrawals from your TFSA account won’t affect your Supplement.  You have no idea how many seniors say to me:  “I would never have invested any money in an RRSP if I’d known how it would affect my Supplement

Now, the government of Canada really, really doesn’t want you to plan your retirement around the Supplement – after all, the Supplement is there to protect the lower income seniors.  But if you think the Supplement is in your future, consider avoiding the RRSP and go with the TFSA.

Qualifying for even a small Supplement brings with it a whole raft of other goodies (lower cost Senior’s PharmaCare, municipal property tax rebates, provincial heating rebates in Nova Scotia, etc.)  So while the government of Canada doesn’t want you to build your retirement fund around the Supplement, you might be tempted to do so anyway.

Filed under: Personal Tax by David Boese No Comments »




Graduate Retention Rebate


July 6th, 2012

This article was written for the Business First publication, and is part two of a series.  You can read the first one here.

 

Don’t you love that feeling you get when you finally finish a task you’ve been dreading?  And you find out it wasn’t nearly as bad as you were expecting?  Sort of like cleaning up the garage and rather than taking a whole day it only takes most of the morning.  Or better yet, you clean up the garage and find that tool you’ve been missing for three months.  Which is great unless that tool happens to belong to your father whose been missing it for three months.

In last month’s issue of the Business First magazine, we wrote about Raymond, the apprenticed electrician who was attending trade school.  In that article, Raymond was pleased to learn about how he qualified for apprenticeship grants of up to $4,000.  His employer was also very pleased to receive tax credits of an additional $4,000.

Raymond has now finished trade school and is a licensed electrician.  He graduated from the Nova Scotia Community College, and was hired full time with Coastal Electrical.  His employer has been busy re-wiring several large superstores throughout Nova Scotia, and Raymond has been kept very busy.  In fact, he was worked quite a bit of overtime.  Since this is his first full year out of school, Raymond is getting quite worried about his income taxes.  He doesn’t have any tuition costs left to claim, and because he’s been depositing some substantial paycheques, he’s worried that he will be faced with a balance owing on his tax return.

So, since Raymond is as human as the rest of us, he puts off filing his income tax return until the middle of April.  He finally heads off to a local accountant to get the task done, and to see how much more he owes in taxes.  His accountant learns that he’s a recent graduate from the Nova Scotia Community College, and tells Raymond about the Nova Scotia Graduate Retention Rebate.

The Nova Scotia Graduate Retention Rebate was implemented in 2009.  The purpose of it was to do exactly what the name suggests – to retain college and university graduates.  Nova Scotia is eager to keep its graduates living and working inside of Nova Scotia, and is putting its money where its mouth is.  If you complete a diploma or certificate program from college, you can qualify to receive $1,250 per year for six years in tax savings.  That’s a total of $7,500 over the six year period.  If you complete a diploma or certificate program from university, the amount doubles to $2,500 per year for six years.  That’s a total of $15,000 over the six years.

The key to receiving the credit is that you need to be a Nova Scotia tax resident at the end of the year.  You are allowed to work outside the province, provided that your primary ties remain in Nova Scotia, and you file a Nova Scotia tax return at the end of the year.  It’s become quite common for taxpayers in Nova Scotia to find temporary work in the Western provinces. This Retention Rebate is clearly designed to encourage them to retain their ties to Nova Scotia, and to continue to file Nova Scotia tax returns.

Anyway, Raymond is very relieved to find out that he doesn’t have to pay any more in taxes – and he’s pleased to be actually getting back a refund.  Now he just wishes he’d done his taxes in February instead of waiting until April!

This article was written to introduce the Nova Scotia Graduate Retention Rebate.  For more information on this lucrative rebate, visit the provincial website at www.novascotia.ca/finance

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The Canada Revenue Agency has a new, more fair penalty structure in place, effective January 1, 2012.  This penalty structure applies to certain late filed information slips (T4 slips, T4A slips, T5 slips, T5018 slips plus some others).

Previously, you could be penalized as much as $1,000 for failing to file a single T4.  Now, the penalty for late filing a single T4 slip is reduced to a maximum of $100.

You can look up the full penalty structure here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/hwpyrllwrks/pnlty/pnlts/pnltchrgs-eng.html

 

 

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Apprenticeship Tax Fun


June 4th, 2012

This article was written for the Business First publication……I’m posting it again here in case anyone missed it 🙂

 

What do bakers, chefs, electricians and hair stylists all have in common?  Well, for one thing, an apprentice employee working in any one of these trades may be eligible for grants of up to $4,000.  Each of these trades, plus many more of course, can be designated under the Red Seal Program.

There’s more good news for the employer who is hiring an apprentice in the Red Seal Program – the employer may also qualify for tax savings of up to $4,000.  This is possible through the Apprenticeship Job Creation Tax Credit.

So between the grants available to the apprenticed employee, and the grants available to the employer, the government is willing to dish out up to $8,000.  This sounds like a good deal, and it is. Let’s look at this further through a “real life” example.

Raymond, a young 19 year old, is a resident of Stewiacke, Nova Scotia.  He is enrolled in courses to become an electrician.  He has successfully completed his first year of school and has obtained employment as an apprenticed electrician, working for Coastal Electrical, a local company. Upon finishing his first year of apprenticeship, he applied for the Apprenticeship Incentive Grant and received $1,000.

Raymond is eligible to receive another $1,000 grant after he completes his second year of apprenticeship.  He is also looking forward to completing his apprenticeship program, after which he can apply for the Apprenticeship Completion Grant and receive a final $2,000.

Coastal Electrical, the local electrical company that hired Raymond, is also eligible for some decent tax savings.  Under the Apprenticeship Job Creation Tax Credit, a business that hires an eligible apprentice can receive a tax credit of 10% of the wages paid to the apprentice, up to a maximum of $2,000 per year.  An eligible apprentice is one who is in his or her first two years of apprenticeship contract.

Coastal Electrical hired Raymond in 2012 and paid him a salary of $30,000.  When Coastal Electrical files its tax return for 2012, they will be eligible to reduce their federal taxes payable by a total of $2,000.  If Raymond remains employed by them for the full two years of his apprenticeship contract, they will be able to claim this tax credit again in the second year.

The Apprenticeship Incentive and Completion Grants, and the Apprenticeship Job Creation Tax Credit, have been around for a few years and are fairly well known by now.  Perhaps what is less well known is how many different types of trades can qualify for these grants / tax credits.  A full list of eligible trades can be found at www.red-seal.ca and includes the well known Red Seal trades (electrician, mechanic, plumber) but also some less well known trades (baker, cook, hair stylist, partsperson).

For more information on the Apprenticeship Incentive and Completion Grants, visit www.servicecanada.gc.ca.  For more information on the Apprenticeship Job Creation Tax Credit, visit www.cra.gc.ca

Next issue, we’ll take a look at how students like Raymond can qualify for up to $15,000 more in tax savings!   Please note that the above “real life” example uses fictional names.  Any resemblance to any actual person or business is strictly coincidence. 


 

Filed under: Business tax, Personal Tax by David Boese No Comments »