What’s New 2020

There were a few major changes announced this tax filing season.

The highly anticipated redesign of the T1 General Income tax return came into effect early January of this year.

Aside from the aesthetic look of more white space and larger font, this redesign sees the T1 return go from 4 pages to 8 pages and has now merged the formerly Schedule 1 into the return. This allows the CRA to calculate federal tax directly on your return.

If you are anything like me, the first thing you noticed is the line numbers have changed from 3-4 digits to 5 digits. Line 101 – employment income is now Line 10100.

Pages 1-5 (titled parts 1-4) mimic the previous years T1 General for entering personal information and net income. There is a new question to note from the CRA to complete Form T90 if you have exempt income, under the Indian Act.

Page 6 and 7, Steps 5&6 previously schedule 1 are where you may notice, what’s new.

Typically schedule 1 amounts change from year to year, based on factors such as cost of living and inflation.

This year’s changes include: a jump to the basic personal amount now $12,069 up from 2018 amount $11809.

The age amount for people born before 1953 is $7494 up from $7333.

As well as minor changes to the Canada Caregiver Amount, disability amount and EI premiums.

The Climate Action Incentive, a refundable tax credit will be adding more of a refund to your tax return this filing season. This credit is due to Carbon taxation brought in by the Liberal government. 2018 filing season was the first year we seen the Climate Action Incentive. The basic amount for a family of 4 was $307. This year the amount has jumped to $448 for a family of 4, with 10% added if you live in a rural area. Note for the climate action incentive, it is ONE claim per household.

First time home buyers credit remains the same this year with a claim of $5,000 and a refundable tax credit of $750.

What has changed here, is the Home Buyers Plan…. The HBP allows potential first-time homeowners, to withdraw $35,000 from RRSP up from $25,000 in previous years and allows this withdrawal to not be marked as taxable income, rather a 15 year pay back plan.

The maximum pensionable CPP earnings is up to $57,400 up from 2018 amount of $55,900, and the EI max up to $53,100, up from $51,700.

Another exciting change to note is the CRA is now accepting new forms of payment. Previously you could pay via cheque, at the bank or online banking. Now you can pay your balance owing using a credit card, PayPal or Interac e-transfer. This is excellent news to paying balances on time!

Filing date is April 30th this year for personal income tax returns, and June 15th for small businesses, but any amounts owing are due April 30th, ensuring filing and any amounts owing paid by this date will avoid penalties and interest.

If you have any questions or need some tax advice, feel free to visit SheDoTax.ca or email info@shedotax.ca. We are always happy to help!

RRSP’s – the ins and outs and what you need to know!

The last month to make RRSP contributions to be claimed for 2019 tax filing is upon us. Time to check those couch cushions, and winter coat pockets and scrounge up some savings, to make that all-important contribution!

What are RRSP’S?

Registered Retirement Savings Plan, a plan created by the federal government to allow you to save and invest your hard-earned dollars into a tax deferred savings account. The term “tax deferred” refers to any money put into the plan that can accumulate tax free until the money is withdrawn.

When can I contribute for the current year?

March 2, 2020 is the contribution deadline for the 2019 tax filing season.

The RRSP contribution period goes from March 2nd of the current year to March 1st of the following year (first 60 days). These dates are important to remember, especially the first 60 days of the following year. These latter contributions can ONLY be declared in the previous years tax return.

Let’s use Peter as an example:

Peter contributes $2,000 to his RRSP on Feb 23rd, 2020. Because the contribution was made in the first 60 days of the year, Peter must declare these on his 2019 tax return. He can choose not to use the contributions and carry them forward to the following year, but he must claim them in the 2019 year.

Can I contribute as much as I want into the plan?

Not exactly. You are limited to the lesser of 18% of your earned income for the year, or the maximum, which is predetermined every year. This year the max sits at $26,500 of contribution room. This amount is what is called your RRSP limit and can be found on your Notice of Assessment from the CRA, or your My Account. All unused room from previous years, accumulates to future years.

The government stipulates *earned income* as not all sources of income are included; including but not limited to interest income, dividends and capital gains.

What makes RRSPs enticing to the average taxpayer is, that not only does your money grow without any interference from the tax man, but you get a tax deduction each year you contribute. Any and all amounts, including the first 60 days of the current year get deducted from your total income, which helps determine your NET income. That’s an almost instant return on investment even before your money has had time to work for you.

Let’s use Peter again as an example:

Peter made $46,000 during the year. He had $3,000 of disposable income and decided to contribute his money to his RRSP. At $46,000 earned income Peter falls into the 15% federal income tax bracket. The $3,000 acts as a deduction from income, bringing his net to $46,000. Peter just maximized his RRSP deduction, by bringing him down a federal income tax bracket!
Let’s take a look at a simple calculation.
Without RRSP $46,000 x 15% =$6900 tax payable.
With RRSP Contribution $46,000 – $3,000 = $43,000 x 15% $6450 tax payable.

The tax savings alone are huge for Peter, and he was pleased with his decision to contribute. Most places of employment take enough tax off your salary or hourly wages to match your year income according to your tax bracket. So, in theory Peter receives a $450 refund from the CRA for his contribution, this does not take into account any and all other forms of income deductions, as well as the provincial tax calculation.

Now another thing to consider is lowering your net income can potentially increase your government credits, like GST/HST and the Canada Child Benefit. These are all calculated based on net income!

As tax preparers, we recommend RRSP contributions as they can provide a huge return on investment to the taxpayer.

The benefits of an RRSP do have an expiry date. Unfortunately, at age 71 is when the CRA requires you to start withdrawing from your RRSP at set percentages. This money being withdrawn is now a RRIF. The whole point of RRSP contributions, aside from ensuring you can live comfortably upon retirement, but it defers the taxes paid on this money, when you likely have lower earned income and be taxed in the lowest tax bracket.

One last thing to note, if you do have RRSP saved up and are a first-time home buyer you can withdraw up to $35,000 for the down payment on your home and have that withdraw be tax free. Repayment is over a 15-year time span, and first payment is required in the second year after the withdrawal. If the money is not contributed back in each tax filing year, it will simply be added as other income. Typically, any money withdrawn from your RRSP is subject to income tax for any other reason outside the Home Buyers Plan and the Lifelong Learning plan, which similarly is the opportunity to withdraw up to $10,000 in a calendar year, ($20,000 lifetime) for education opportunities, with a similar repayment plan.

Now is the time to determine if you should make that last RRSP contribution for the year.

Have questions or want some advice for this upcoming tax filing season, we at SheDo Tax are more than happy to help!