Unimor Capital Corporation

Tag: income tax

  • Maximizing Your Tax Return

    Maximizing Your Tax Return

    If you filed your taxes and found you’re getting a refund this year, you might be wondering how to use the money. Once you’ve determined you’ll be getting a tax refund this year, you’ve got options when it comes to using your extra cash. It can be tempting to spend the sudden windfall on a shopping spree, but if you’d rather play it safe this year, we’ve put together seven sensible — but satisfying — ways to use your tax return.

    1. Pay Down Your Debt
    If you’re carrying personal debt, you’re not alone. The average household debt hit $72,950 at the end of 2019, up 2.7% from the previous year, according to a recent consumer debt study. By using your refund to pay down your debt, not only will you lower your current balance, but you’ll also reduce the amount of interest you’ll pay on your remaining balance — and that will put more money in your pocket down the road.

    2. Open or Contribute to a Tax-Free Savings Account (TFSA)
    A TFSA is a great savings tool for both short- and long-term goals. It’s a flexible savings plan that lets Canadians who are 18 years and older save and invest tax-free, with competitive interest rates. Anything you contribute to a TFSA, as well as any income earned in the account (such as investment income and capital gains), is generally tax-free, even when it’s withdrawn.

    3. Boost Your Registered Retirement Savings Plan (RRSP)
    If you’re getting money back in the form of a tax refund, a smart way to use the money is to stash it away in your RRSP. An RRSP is one of the most effective retirement saving tools available to most Canadians. And since your money is sheltered and doesn’t get taxed until you withdraw it, your funds can grow even faster.

    Another benefit is that RRSP contributions are tax-deductible, which means they lower your annual taxable income for the next year. To find out your RRSP deduction limit, look at your latest notice of assessment or check with the Canada Revenue Agency (CRA).

    4. Spend a Little, Save More
    If you’d really like to treat yourself to something new with your tax refund, there’s a way to do it without feeling guilty. A good compromise is to buy one (reasonably priced) treat and put the rest of the money into your savings. Where you save the money is up to you. You’ve got plenty of options: a regular savings account, a Tax-Free Savings Account (TFSA), or an RRSP. Putting a good chunk of your tax return in your savings is a smart move, especially during tough financial times.

    5. Save for Your Kids’ Future
    If you have kids, you can use your tax refund to boost their education funds. The cost of university is steadily rising, and the sooner you can start saving for it, the better. A four-year degree is likely to cost more than $100,000 — making a Registered Education Savings Plan (RESP) one of the best investments you can make in your child’s future.

    6. Invest in Your Home
    We’re spending more time at home than ever, so why not use your tax refund to improve where you live? You can do this in a couple of ways. If you’re thinking of buying a new home, you can use your refund to save up for your down payment (you may even be eligible for a first-time home buyers’ tax credit). Or if you already own a home and you’re content, consider investing in renovations, whether it’s a big project like giving your bathroom a total refresh, or a smaller investment like creating an office nook to make working from home more enjoyable. It may seem like an indulgence, but by upgrading your home, you’re actually adding value to it for the future.

    Getting a tax refund can feel like an unexpected gift. To make the most of the money and bring yourself peace of mind, it’s a good idea to resist the urge to spend it all, and instead take the time to think about how you can use your refund to make the biggest impact.

  • The Smart Way to Use Your Tax Refund

    The Smart Way to Use Your Tax Refund

    There’s at least one nice thing about doing your taxes: the possibility of getting a refund. According to figures from Revenue Canada, just over half of the nearly 25 million tax returns filed in 2019 received a refund, at an average amount of $1,670.

    If you did receive a refund, you need to decide what to do with it. The temptation to spend your refund immediately can be strong. Who doesn’t want a vacation, a new car, or that kitchen renovation you’ve been hoping to start? However, it’s important to consider all your options, such as paying down debt or saving for the future.

    Whether you’re beginning your career, starting a family, or saving for a down payment on a home, below are some suggestions about smart ways you can put your tax refund to use.

    Pay Down Your Debt
    According to a survey conducted by Global News at the end of 2019, the demographic with the most debt appears to be Generation X (loosely defined as people aged 35-54), who report an average debt of over $10,000, not including their mortgage. This includes credit card debt, which can carry interest rates nearing 20%. Monthly payments at such high rates can quickly eat a big hole into your budget.

    The Financial Consumer Agency of Canada (FCAC) offers advice on how to manage your debt. It recommends paying off higher-interest debt first, such as payday loans and credit cards. This will help lower your interest costs and free up more money to reduce your overall debt.

    The debate about whether you should invest your money or use it to pay down debt is strong and ongoing. This choice depends heavily on prevailing interest rates, the amount you owe, and your financial situation. Online calculators can be a great resource to help you decide whether paying down your debt is the right choice for you.

    Save for Retirement
    The internet is full of statistics about Canadians not saving enough for retirement. Government programs such as the Canada Pension Plan and Old Age Security will provide a basic income for many Canadians in retirement, but you need to consider your own retirement wants and needs in deciding how much more savings you need. The good news is that the earlier you start saving, the more your money could grow with the benefit of smart investment choices.

    A Registered Retirement Savings Plan (RRSP) is the most well-known retirement savings option in Canada. It allows you to contribute money each year, while avoiding taxes on those contributions until you withdraw it later in life (hopefully at a lower tax rate). In fact, RRSP contributions can help increase the amount of money you receive as a tax refund.

    Tax Free Savings Accounts (TFSA’s) are another great option for long-term savings, as any capital gains you accumulate inside a TFSA are not taxable. Luckily, there is no shortage of options when it comes to saving your money for retirement. Canada Life offers a range of saving and investing solutions, including mutual funds and more comprehensive retirement plans.

    Start an Emergency Fund
    There are several reasons to save beyond the long-term goal of retirement. The FCAC recommends Canadians set up an emergency fund to cover unexpected expenses, such as the loss of employment or a medical emergency. An emergency fund can be set up slowly, with small weekly contributions to a dedicated savings account. You can also use part of your tax refund to set up a base from which to build over time.

    This process can also be applied to other savings goals, such as a wedding or a down payment on a new home. You can set aside a portion of your tax refund, and then make smaller contributions on a regular basis to meet your goal.

    Save for a Child’s Education
    If you are expecting a child, or are the parents of a recent newborn, you’ve probably thought at least in passing about the costs associated with their education. The average cost for a year of undergraduate tuition in Canada hit $6,571 in 2019, reports Statistics Canada. And tuition levels are widely expected to continue rising. Luckily, there are government programs to help you save money for your children, the most well-known is the Registered Education Savings Plan (RESP).

    You can open an RESP as soon as your baby is born. The earlier you start saving, the more you can potentially grow your money by the time he or she is ready for post-secondary studies. The federal government will contribute up to $500 per year to any deposits you make into an RESP (based on a formula of matching your own contributions to the account at a rate of 20% annually). So if you’re putting in less than $2,500 each year (about $200 per month) to your child’s RESP you’re missing out on those government amounts.

  • How to Prepare for the Upcoming Tax Season

    How to Prepare for the Upcoming Tax Season

    Many Canadians’ year-end tax prep may be a little different as 2020 draws to a close. Taking a close look at your personal balance sheet before December 31 is a routine exercise that can help you make the most of your savings, reduce your tax bill and boost your tax refund in the new year. But a slew of pandemic-linked emergency benefits and relief measures this year means there may be some additional financial housekeeping you need to do this time. Here are some tips to make sure you start off the 2021 tax season on the right foot:

    Paying Taxes on Your Emergency Benefits
    The first round of emergency benefits Ottawa rolled out during the pandemic did not have any tax withheld at source. If you received either the Canada Emergency Response Benefit (CERB) or the Canada Emergency Student Benefit (CESB), you’ll have to include 100% of those payments in your 2020 tax return. The government will send you a T4A tax reporting slip for 2020 showing the total amount you report.

    How much tax you’ll actually end up paying depends on your overall income for 2020. For example, if you made $27,000 from work in 2020 and received $8,000 worth of CERB, your taxable income for the year would be $35,000. Both the income you received from CERB and your job would be taxed in the same way.

    You May or May Not Have to Pay Taxes
    “If you’re under $12,000 in total income for the year, you don’t have to worry about any income taxes next year,” says Frank Fazzari, a chartered professional accountant at Fazzari & Partners. With the second round of COVID-19 benefits that became available in September—the Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB)—the government is withholding 10% in taxes at source.

    This, however, may be insufficient to cover your tax liability, Jamie Golombek, managing director of Tax and Estate Planning with CIBC Private Wealth Management. In addition, when it comes to the CRB, you may have to pay money back if your additional income for 2020 is more than $38,000. The claw back rate is $0.50 for each dollar of CRB received for net income over this amount. If you’ve received either round of benefits you may want to set aside some funds to cover any taxes or payments, you may owe come tax season next April.

    Repaying Emergency Benefits You Don’t Qualify For
    If you have to repay any COVID-19 benefits you didn’t qualify for, it would be best to return the funds by the end of the year. There is no obligation to return the payments by the end of the year. But repaying after December 31 means the amounts will show up on your T4A for 2020 and you may have to pay taxes on them. If you end up paying taxes on money you return, the CRA will eventually make you whole but you may have to wait until you file your 2021 tax return in the spring of 2022 until that happens. The process is based on general tax rules in the Income Tax Act that apply to repayments of taxable income.

    The Simplified Home Office Deduction
    If you’re one of the 2.4 million Canadians who’ve been working from your couch, the kitchen table or the kids’ bedroom this year because of COVID-19, you’ll likely be able to claim some home-office costs on your 2020 tax return without having to sift through receipts or ask your employers to fill out forms.

    If you’re an employee who’s been toiling at home more than 50% of the time over at least four consecutive weeks in 2020 due to COVID-19, you’ll be able to claim a deduction of $2 for every work-from-home day up to a maximum of $400. This is what the CRA is calling a temporary flat-rate method of calculating the home office deduction. If you’re an employee with significant home office expenses, you can use the current “detailed method” of calculating the home office tax break, the CRA has said.

    TFSA Withdrawals
    There are no COVID-19 rule changes affecting tax-free savings accounts, but many Canadians have ramped up their contributions this year, according to a recent study from BMO. While a smaller percentage of Canadians was able to put as much money as they had planned into a TFSA this year, those who did were able to save up a little extra, the data suggests. Overall contributions were up 9.5% year over year.

    If you’re planning to draw down on some of your TFSA savings soon, you may want to do so before the end of the year. Whenever you take money out of a TFSA, an equivalent amount of TFSA contribution room frees up in your account—but that doesn’t happen until the following calendar year.

    RRIF Withdrawals
    If you turned 71 in 2020, you have until December 31 to convert your registered retirement savings plan (RRSP) into a registered retirement income fund (RRIF) or registered annuity—that’s standard. If you already have an RRIF, though, remember Ottawa reduced the required minimum withdrawal for 2020 by 25%.

    One-time COVID-19 Payment for Persons with Disabilities
    Ottawa has also established a one-time, non-taxable payment of up to $600 for persons living with disabilities to help soften the impact of extra expenses caused by the pandemic. Being eligible and applying for the disability tax credit is one of the qualifying criteria to receive the payment. If you haven’t applied for the DTC yet, you’re still in time. Ottawa moved the application deadline from September 25 to December 31.

    Charitable Donations
    Charitable donations are especially important in a year that has seen jobless numbers skyrocket, domestic violence spikes, and marginalized communities struggle disproportionately with the impact of COVID-19. Both the federal and provincial governments offer donation tax credits that, when combined, can result in tax savings of around 50% of the value of your gift in 2020, depending on where you live. From the federal government alone, Canadians get a tax credit of 15% credit on the first $200 of charitable donations and 29% on anything beyond that amount.

     

  • What to Do With Your Tax Refund

    What to Do With Your Tax Refund

    Another tax season is behind you – it’s time to relax, sit back, and wait for that return. The average Canadian is entitled to a refund, according to Canada Revenue Agency, with the average refund for last year’s income tax totaling $1,580. Before you splurge, however, let’s take at a look at the benefits of saving your tax refund and putting it to better use. Here are our top tips for what to do with your tax refund:

    1. Stop treating your return like found money

    Although most Canadians are happy to receive a tax refund, there’s very little reason for celebration – you’re actually giving Canada Revenue Agency an interest-free loan. Many Canadians think of a tax refund as a bonus, even though it’s your own money to begin with. Instead of treating your tax refund like found money, it’s important to spend it prudently.

    1. Pay off any outstanding bills

    If you have outstanding bills, using your tax refund to pay them off is probably the best option for you. There’s nothing worse than the stress of being behind. Take this opportunity to get ahead of the game for once.

    1. Pay down your credit card debt

    Credit card debt can build quickly, but it’s hard to whittle down once it mounts. If you have outstanding debt on your credit cards, the responsible thing to do would be to put your tax return towards that debt. Of all the debt you have, credit card debt is most likely to have the highest interest rate running from 10% – 29%. By paying that debt down first, you’ll actually be saving money in interest later.

    1. Put some of it towards your mortgage

    You can’t beat the guaranteed rate of return of paying down your mortgage. If you have a mortgage that allows you to make additional payments without penalty (and most mortgages will allow you to make an annual lump sum payment of 5% – 25% of the mortgage value), this might be the perfect opportunity to use that to your advantage. The more you pay now, the less you pay in interest later.

    1. Invest in your future

    If you haven’t started an RRSP, maybe it’s time. Your return might not amount to much now, but over the years your investment will grow. This is a particularly good idea if you are feeling no other financial pressures at the moment. A tax return can also be the perfect way to launch an RESP for your child. Consider spending your tax refund to invest for your child’s education – a deposit to an RESP (Registered Education Savings Plan) could be eligible for 20% grant for children up to age of 18 for contributions up to $2500.

    1. Start an emergency fund

    Doesn’t it sometimes seem like bad things happen either when you’re least prepared or when you’re least able to cope? You just paid a huge vet bill and your washing machine suddenly dies. You finally paid off your credit card debt and your car breaks down. These situations happen all the time, and sometimes it feels like you’ll never get ahead. Without an emergency fund, situations like these can be stressful. Why not take this extra cash and set it aside for those little emergencies? When the time comes – and it will – you’ll be glad you did.

    1. Upgrade your job skills

    Have you recently found yourself wanting to return to school? Have you dreamt of taking courses to upgrade your skills? Will doing so help increase your salary? If you answered ‘yes’ to any of these questions, you might want to consider using your return to invest in yourself. This is an especially good idea if it will help to boost your income in the long run.

    1. Treat yourself to something nice

    Sometimes being responsible is all we do. If you’re one of those people who seem to always be doing the right thing – saving money, paying down bills, saying no when you really want to say yes – then maybe you need to do something nice for you. Buy yourself a new outfit. Go get your hair done. Take yourself out for a nice lunch. Go golfing. Spoiling yourself is sometimes the best course of action – especially if it’s something you don’t often do.

  • What You ‘Should’ Do with Your Tax Refund

    What You ‘Should’ Do with Your Tax Refund

    If you’re getting cash back this year from filing your income taxes, hold off on booking those plane tickets. There are ways to get the most ‘bang’ for your refund bucks.

    1. Contribute to a Registered Retirement Savings Plan (RRSP)

    If you spend your RRSP refund… you unknowingly end up investing less than you started with, and less than most think. If you spend your RRSP refund, you are converting dollars that have already been taxed into RRSP dollars that will be taxed again later when you withdraw the funds. Many people mistakenly think that if they put $3,000 in their RRSP and spend their refund, they’ve added $3,000 to their retirement fund. But if you’re in a 40% tax bracket and spend the $1,200 refund, you’ve only invested $1,800 of the $3,000 you started with. And if you reinvest that $1,200, you’ve already contributed $4,200.

    2. Pay Down Debt

    Attack those high-interest debts first. Credit cards and unsecured credit lines can charge interest ranging from 6 to 21% and can be a real strain on cash flow, preventing you from getting ahead. With credit cards typically charging 19 to 21% on unpaid balances, you are unlikely to find an investment that will guarantee you a higher return to justify investing rather than paying off debt.

    3. Put the Money Towards Your Mortgage

    This isn’t necessarily for everyone, but there are good reasons to consider making a lump-sum payment. Even though mortgage rates are very low, we know they will go up eventually. By putting a lump sum down on the mortgage now, the payments when you renew the mortgage may still be manageable. Using your tax return to pay down your mortgage will not only give you a guaranteed rate of return, but it will also ensure that you’re mortgage-free sooner and save you thousands in interest over the life of your mortgage.

    4. Open or Contribute to a Tax-Free Savings Account (TFSA)

    If your income is currently below where you project it to be at retirement, you may want to look at maximizing your TFSA. Similar to an RRSP, this account allows you to earn investment returns tax free. Although you receive no tax deductions, you are consequently not taxed on withdrawals. Not having any contribution room left for an RRSP is another argument for contributing toward a TFSA.

    5. Get Smart About Saving

    If you have children, keep in mind just how costly their post-secondary education is going to be. By catching up on RESP (Registered Education Savings Plan) contributions, you can receive up to a 20% matching contribution from the Canadian Government in the form of a Canadian Education Savings Grant. That’s an impressive rate of return on investment without taking any risk. Another option is to spend the funds on your own education as a means to improve your skill set and move up the ladder or transition to another career altogether.

    6. Look into Life Insurance

    It can be hard to see the benefits of this investment, but it’s worth remembering that anything can happen. Life insurance is essential, especially for young families. You need to cover your debts and protect from loss of income to ensure the well-being of surviving family members. Even though life insurance can be inexpensive, some young families have a difficult time finding the cash flow to pay for it. Using a tax refund to fund the annual premiums can be a way to not affect day-to-day living expenses but still ensure you and your family are protected in the event of premature death.

  • How to Make Tax Time a Little Less Stressful

    How to Make Tax Time a Little Less Stressful

    Filing taxes without preparation is like running a marathon without training. It is a long, hard go. With good preparation, filing your next tax return will be more like a walk in the park. So start getting ready now and learn how to make tax time a little less stressful!

    Develop a System
    Create a practical filing system for your financial papers. First, make files for the categories required on your tax return. When next year’s deadline comes, everything will be pre-sorted. Group non-tax-related items into categories, and make a file for each category.

    Record Income & Expenses
    Keep a day-by-day record of all money coming in and going out. Close acquaintance with your financial situation leads to easy tax filing and eventually to prosperity. Keep receipts for everything, and make notes of small cash outlays. Update your records at least once a week. Pay bills on time and send invoices promptly. Acquiring this habit saves money and reduces bookkeeping.

    Use Software
    With simple bookkeeping software, easily track and calculate financial data. Spreadsheet programs, such as Excel and Numbers, provide tremendous flexibility and portability.

    File the Backlog
    File any piled-up documents for previous tax years. Get the job done with least effort by following this rule: If you touch a paper, file it.  Securely dispose of any unnecessary documents.

    Get Help
    The assistance of a professional bookkeeper or accountant is valuable for saving time and effort, as well as for ensuring accuracy. On the Internet, you’ll find many qualified, low-cost virtual assistants who will help you to set up a good system and to keep it running smoothly.