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Tag: RRSP

Planning & Establishing a First Home Savings Account

Saving up for your first home can be stressful and challenging in this ever-changing market. Recently the federal government of Canada has created a way to help make the process a little easier, so you can begin saving sooner.

In the 2023-2023 budget, they announced several measures to help Canadians who are trying to save money for a down payment on the purchase of their first home, by creating a First Home Savings Account (FHSA). This new savings account is open to eligible taxpayers starting in April 2023.

Contributions to the Plan

This new benefit is open to any resident of Canada who is at least 18 years of age and has not lived in a home which they own in any of the current or previous four years. If criteria are met, you are able to open the plan, contributing up to $8,000 annually. Contributions can be made annually, ending at the end of the calendar year. Unused portions of contributions can be rolled over into the following year. Regardless of the timeline, the maximum you can contribute to this plan is $40,000. Contributions under this plan are similar to contributions made to RRSP accounts.

Withdrawing from the Plan

On a qualifying purchase (when money from the fund is used to make a purchase of a qualifying home) the money contributed, as well as any investment income, are able to be withdrawn tax free. The plan holder must have a written agreement to buy or build a home located in Canada before October 1 of the following year. The plan holder also must intend to occupy that home within one year of buying or building it.

Other Information

Individuals who open a FHSA have 15 years from the opening date to use funds in the account on a qualifying purchase. If the money is unused in the account after 15 years, or at the end of the year when they turn 71), the account must be closed with funds either being transferred to a RRSP or RRIF (Registered Retirement Income Fund) on a tax-free basis.

This plan is an addition to the existing Home Buyer’s Plan (HBP), which allows an individual to withdraw up to $35,000 from their RRSP and use those funds to purchase a first home. Any funds withdrawn through the HBP however must be repaid over the next 15 years. Both plans are options for buying your first home, however an individual is not permitted to withdraw from both FHSA and a HBP withdrawal in respect to the same qualifying home purchase.

April 5, 2023
The Ultimate Guide to the Tax-Free First Home Savings Account

As house prices continue to rise, many Canadians find it more challenging to save for a mortgage down payment. As reported in the 2022 federal budget, the Canadian government has proposed initiatives to make homeownership more affordable. One way the government aims to tackle the housing crisis is through the First Home Savings Account (FHSA).

The FHSA has many similarities to two existing registered accounts, the tax-free savings account (TFSA) and the registered retirement savings plan (RRSP). Here is updated information about the First Home Savings Account (FHSA) and what you should know about it.

What is the First Home Savings Account (FHSA)?
The first home savings account is a tax-free savings account for the sole purpose of buying a home. The FHSA is expected to become operational in 2023 and is targeted at Canadian residents who plan to purchase their first home. There are conditions on who can use it and how.

When you contribute to your FHSA, you can invest your money in allowable investment assets like stocks, bonds, mutual funds, exchange-traded funds (ETF’s), and guaranteed investment certificates (GIC’s). You can get these through online brokers. The CRA would not tax investment income from your FHSA when you make withdrawals. It is a tax-free account.

Suppose you contribute $5,000 to your FHSA and invest in stocks. If the value of your stocks increases to $10,000, you will make a capital gain of $5,000. This extra income is not subject to tax. The income is safe from the CRA. In addition to having a tax-free savings account, if you contribute to the FHSA, you can claim tax deductions when you file your income tax return, thereby reducing your taxes.

What is the FHSA contribution limit?
Through the FHSA, you can save $8,000 annually beginning in 2023. Why only $8,000? The FHSA comes with an annual limit of $8,000 and a lifetime limit of $40,000.

There is a significant difference in how the tax-free savings account (TFSA) works. Your unused contribution room accumulates and can be carried forward. This is not the case for the first home savings account (FHSA). You cannot carry your FHSA unused contribution room forward to future years.

For example, if you contribute only $6,000 to your FHSA in 2023, by 2024, you will forfeit the $2,000 unused contribution room and only have the $8,000 annual contribution room for 2024. Typically, if you contribute your annual contribution limit of $8,000 every year starting from the year you are eligible to open and contribute to an FHSA, you will reach your lifetime limit of $40,000 within five years.

Who can open a FHSA?
If you are planning to buy your first home, you may be able to use the first home savings account. However, you need to check that you are eligible to open and use the FHSA for your home buying goal. There are eligibility requirements.

First, you must be a resident of Canada between the ages of 18 and 40 years old. Also, you must not have resided in a home you own at any time in the year you open your FHSA or during the past four calendar years. Essentially, the Canadian government wants the proposed FHSA to benefit only first-time primary homeowners.

Can you open more than one FHSA?
Yes, you can open more than one first home savings account, but you cannot exceed the annual and lifetime contribution limits across all your accounts.

Withdrawing from the First Home Savings Account (FHSA).
If you withdraw money from your FHSA to purchase your first home, you will not pay taxes on your withdrawals. However, if you use money from your FHSA for other purposes other than a first-home purchase, the CRA will recognize your withdrawal amount as income and tax it.

The lifespan of the FHSA is limited. The first home savings account can only be open for 15 years. If you open and contribute to your FHSA but do not use it to purchase a qualifying first home after 15 years from when you opened it, you will need to close your account.

You have three withdrawal options for the money in your FHSA.
You can withdraw a lump sum amount from your first home savings account and pay taxes on the withdrawal. Another option to avoid any immediate taxation. To do this, you convert your FHSA to a registered retirement savings plan (RRSP) before the end of the year you turn 71. Alternatively, you can transfer the funds in your FHSA through your FHSA provider to a registered retirement income fund (RRIF). It is important to note that the RRIF is intended to provide periodic income in retirement. If you convert your FHSA to a RRIF, you will need to start withdrawing the minimum amount in the following year.

Direct transfers from your FHSA to your RRSP or RRIF are qualifying transfers. The transfer is not taxable when you initiate this transfer. However, withdrawals from your RRSP and income received from your RRIF are subject to tax at your marginal tax rate.

Contribution Room Consequences
Also, when you make transfers from your FHSA to an RRSP, this transfer does not reduce your RRSP contribution room! Even if you do not have available RRSP contribution room, you can still do a qualifying direct transfer from your FHSA to your RRSP. It is a very strategic move.

However, when you withdraw from your first home savings account or make a transfer to your RRSP or RRIF, this does not increase your FHSA contribution limits. For example, if you contribute up to the $8,000 annual limit to your FHSA in 2023 but decide to transfer $5,000 to your RRSP, this does not free up additional room for you to contribute to your FHSA in 2023. You would need to wait until 2024 for your total annual contribution limit of $8,000. Likewise, you can transfer money from your RRSP to your FHSA without paying taxes if you have available FHSA contribution room, but your transfer would not restore your RRSP contribution room.

The FHSA vs The Home Buyer’s Plan (HBP)
The FHSA is different from the home buyer’s plan. With the home buyer’s plan, you can borrow up to $35,000 from your RRSP tax-free to buy your first home. When you withdraw from the RRSP through the home buyer’s plan, you need to pay back the amount you borrow within 15 years. Whereas when you withdraw from the FHSA, you do not have to repay the withdrawn amount.

Does the First Home Savings Account replace the Home Buyer’s Plan (HBP)?
No, the FHSA does not replace the home buyer’s plan. The HBP will still be available to Canadians looking to purchase their first home. However, you cannot withdraw from the first home savings account and the home buyer’s plan at the same time to buy the same home. You have to use one at a time when you qualify for a first-home purchase.

Conclusion
The first home savings account is good for Canadians looking to purchase their first home. You can use the FHSA to save up for your down payment. With the FHSA, you get tax benefits available to the TFSA and the RRSP in one account. You can claim tax deductions for your contributions, and your withdrawals for a home purchase are tax-free. The FHSA does not replace the existing home buyer’s plan (HBP). Instead, it provides another tax-advantaged home-savings opportunity for Canadians.

May 1, 2022
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.

April 1, 2022
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.

April 1, 2021
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.

January 4, 2021
5 Reasons to Open an RRSP

A Registered Retirement Savings Plan (RRSP) is an account, registered with the federal government, that you use to save for retirement. There are a number of benefits to saving in an RRSP.

1. Contributions are tax deductible.
You claim your RRSP contribution as a deduction on your tax return. For example, if you’re in the top tax bracket in Ontario, every $1,000 you contribute reduces the tax you pay by approximately $535. And if your income is lower in a year, you can carry forward the deduction for your contribution to a future year when your income may be higher. That way, your tax savings are greater when you’re in a higher tax bracket.

2. Savings grow tax free.
You won’t pay any tax on investment earnings as long as they stay in your RRSP. This tax-free compounding allows your savings to grow faster.

3. You can convert your RRSP to get regular payments when you retire.
You can transfer your RRSP savings tax free into a RRIF or an annuity when you retire. You’ll pay tax on the regular payments you receive each year — but if you’re in a lower tax bracket in retirement, you’ll pay less tax. Make sure your RRSP fits into your overall financial and retirement plan.

4. A spousal RRSP can reduce your combined tax burden.
If you earn more money than your spouse, you can help build their tax-free savings by contributing to a spousal RRSP. Retirement income will then be split more equally between the two of you — which may reduce the total amount of tax you pay.

5. You can borrow from your RRSP to buy your first home or pay for your education.
You can take out up to $25,000 for a down payment for your first home under the Home Buyers’ Plan (HBP). You can also take out up to $20,000 to pay education costs for you or your spouse under the Lifelong Learning Plan (LLP). You won’t pay any tax on these withdrawals as long as you pay the money back within the specified time periods.

February 1, 2020
New Year, New Financial Goals

[vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]The start of a new year is the perfect time to reflect on what you want to improve in your life and to create plans to make it happen. There is a good chance that you’re already thinking about resolutions like going to the gym more, eating healthier and volunteering with local organizations.

But what about financial resolutions? The beginning of the year offers the opportunity to focus on what’s going on with your money. With the right plan in place, you can stick to your financial resolutions and end the coming year in a better place than you started it.[/vc_column_text][/vc_column][/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none” shape_type=””][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][nectar_icon_list animate=”true” color=”default” direction=”vertical” icon_size=”small” icon_style=”border”][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774653-5″ tab_id=”1579034774654-4″ header=”Save More Money” text=”Not surprisingly, the top financial resolution is to save more money. There are nearly countless ways to go about this — you can increase your RRSP contributions, set up automatic transfers to a high-yield savings account and cut back on unnecessary spending. You can also use a credit card to your advantage. Many of the best credit cards offer competitive rewards and statement credits that can earn you cash back, points or miles that can be used to offset purchases.”] [/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774701-7″ tab_id=”1579034774702-2″ header=”Improve Your Credit Score” text=”If you have a less than stellar credit (scores below 650), make it a priority to raise this year. You can improve your credit score in several ways, including paying your bills on time and in full (which may include setting up autopay), paying off debt, limiting how many new accounts you open and cutting back on spending. It’s important to regularly check your credit report so you can spot fraud early and ensure the correct information is reported to the credit bureaus (Experian, Equifax and TransUnion).”] [/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774729-8″ tab_id=”1579034774730-5″ header=”Create a Personal Budget” text=”For some, a budget can feel constricting, but tracking your spending can be a useful tool to help you understand where your money goes each month. A clear budget can help you set guidelines for what you can afford to spend and help you identify areas where you could cut back. Start by writing down all your fixed expenses, such as rent/mortgage, cell phone, groceries and savings. Then you can see how much money you have leftover for flexible expenses, such as restaurants, clothing and entertainment costs. Looking at your credit card statement can be an easy way to see all your purchases in one place.”][/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774759-5″ tab_id=”1579034774760-9″ header=”Pay Off Credit Card Debt” text=”If you’re struggling with credit card debt, you’re not alone. In fact, about 61% of Canadians have a credit card and cardholders carry an average balance of $6,194, according to Experian. So, it’s not surprising that so many people are looking to pay off credit card debt in the new year. If you have credit card debt, consider consolidating it on a balance transfer credit card, which offer no interest for up to 21 months. Consumers who can pay down debt on their own ought to consider payoff methods like paying off your highest debt first (called the debt avalanche method) or paying off your smallest amount of debt first (debt snowball method).”][/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774781-9″ tab_id=”1579034774781-5″ header=”Start an Emergency Savings Fund” text=”Nearly four in ten Canadian adults have no emergency savings. If you’re one of those people, now is a good time to set a goal to build your emergency fund. With an emergency fund available, you will reduce the risk of going into debt trying to cover unforeseen expenses, like a flat tire or medical bill. Consider setting up automatic transfers to a savings account. With this strategy, the money is ‘out of sight, out of mind’, reducing the chance that you will be tempted to spend it. Even having as little as $500 to $1,000 saved can keep a family from falling on hard times, according to an Urban Institute study. So, don’t feel like you need to have three-to-six months’ worth of expenses saved immediately. Start small and keep adding to your emergency fund throughout the year.”][/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774811-8″ tab_id=”1579034774812-4″ header=”Boost Your Retirement Savings” text=”Saving for retirement is one of the most important aspects of preparing for a sound future. Many Canadians worry that they may never retire, so it makes sense to consider your own retirement prospects in the coming year. Consider opening an RRSP account and make automatic weekly or monthly contributions. Much like starting an emergency savings fund, you may not notice a small amount missing from your weekly pay cheque, but it will add up over time and provide you with some peace of mind in the future.”][/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774842-9″ tab_id=”1579034774842-6″ header=”Cook More at Home” text=”You might be surprised at how much you spend on eating out each week. Once you add that expense up, you might decide that it makes more sense to cook at home. Cooking at home is cheaper, healthier and it builds a useful skill that everyone should have. Consider putting those savings toward paying down debt or building up your emergency savings fund.”][/nectar_icon_list_item][nectar_icon_list_item icon_type=”numerical” title=”List Item” id=”1579034774862-10″ tab_id=”1579034774863-5″ header=”Boost Your Income” text=”Sometimes, it’s less about savings and cutting back and more about increasing your income. There’s no substitute for making more money. Consider looking for ways to start a side hustle, get a promotion, or even look for a better job. You might need to update a certification to qualify for a higher pay or advancement, but that could be worth the cost if it comes with a pay hike. Find different ways to increase your revenue streams so you aren’t entirely dependent on one income source. Not only can that strategy help you make more money, increase your savings and reach your goals, it can also provide some protection if you lose your primary job.”][/nectar_icon_list_item][/nectar_icon_list][/vc_column][/vc_row][vc_row type=”in_container” full_screen_row_position=”middle” scene_position=”center” text_color=”dark” text_align=”left” overlay_strength=”0.3″ shape_divider_position=”bottom” bg_image_animation=”none”][vc_column column_padding=”no-extra-padding” column_padding_position=”all” background_color_opacity=”1″ background_hover_color_opacity=”1″ column_link_target=”_self” column_shadow=”none” column_border_radius=”none” width=”1/1″ tablet_width_inherit=”default” tablet_text_alignment=”default” phone_text_alignment=”default” column_border_width=”none” column_border_style=”solid” bg_image_animation=”none”][vc_column_text]Bottom line: think about what you want from life in the coming year (and in the future) and set resolutions that can help you make the most of your financial resources. Remember that these goals are designed to help you live your life better, however, don’t forget to spend some time enjoying the here and now as well.[/vc_column_text][/vc_column][/vc_row]

January 13, 2020
The TFSA Limit is Being Raised

It’s official, the TFSA dollar limit will be increasing to $6,000 in 2019. TFSA’s have been extremely popular among millions of Canadians, many of whom will welcome the upcoming ability to sock away extra funds in their TFSA’s come 2019.

The TFSA was first introduced in the 2008 federal budget and became available to Canadians for the 2009 calendar year. The initial TFSA dollar limit of $5,000 had risen to $5,500 for the past few years. Under the tax rules, starting in 2016 and for each subsequent year, the annual TFSA dollar limit was fixed at $5,000, indexed to inflation for each year after 2009, and rounded to the nearest $500 to make the annual limits easy to remember.

Each fall, the Canada Revenue Agency announces the indexation increase for the following calendar year. The “indexation factor” for 2019 was calculated by taking the percentage change in the average monthly Consumer Price Index (CPI) data as reported by Statistics Canada for the 12-month period ended September 30, 2018 relative to the average CPI for the 12-month period ended on September 30, 2017.

This week, the CRA announced the 2019 inflation factor to be 2.2%, which is the rate used to increase the federal tax brackets from 2018 to 2019 and most federal credits. Combined with prior years’ inflation, it was enough to push the TFSA dollar limit for 2019 to the next $500 which is why it will hit $6,000 for 2019.

Unused contribution room can be carried forward to future years such that the cumulative limit for someone who has never contributed can be as high as $57,500 today. In other words, if you were at least 18 years of age in 2009 and resident of Canada throughout that period and have never opened a TFSA before, you could contribute the entire $57,500 to your TFSA today. In honour of the TFSA’s upcoming tenth year anniversary, let me share with you three reasons why Canadians have embraced their TFSA’s.

It’s really, truly tax-free.

While you contribute to a TFSA with after-tax dollars, once the funds have been contributed, they grow tax-free, for life. In other words, all income and gains, whether realized or unrealized, will never be taxed while in the plan and the TFSA funds may be withdrawn tax-free, at any time, for any reason.

And because TFSA withdrawals aren’t considered to be income, they don’t negatively impact income-tested benefits and credits, like the Guaranteed Income Supplement, Old Age Security payments or the age credit. Even upon death, the entire fair market value of your TFSA can be received by your estate tax-free. And if you name a successor holder or beneficiary on your TFSA, the assets can flow directly to the named successor holder or beneficiary without going through the estate, which could mean potential savings on provincial probate fees or estate administration taxes.

If you name a successor holder, who can only be your spouse or partner, the TFSA will continue to grow tax-free and your surviving spouse or partner steps into your shoes and becomes the new TFSA holder. Alternatively, if your spouse is the beneficiary of your TFSA, she can transfer the entire FMV of the TFSA upon your death to their own TFSA without using any of their own TFSA contribution room, thus prolonging the tax-free income and growth in the plan.

You can contribute at any age.

To contribute to an RRSP, you must be 71 years of age or younger and you must have ‘earned income’. Contrast that with the TFSA in which there is no age limit and no earned income requirement. One popular strategy that has emerged is for seniors, who are required to withdraw a prescribed minimum amount annually from their RRIF at age 72, to re-contribute any after-tax withdrawals not needed to fund living expenses back into a TFSA for tax-free retirement accumulation.

You can re-contribute your withdrawals.

Finally, keep in mind that any amounts withdrawn from your TFSA can be re-contributed, beginning the following calendar year, without using up TFSA room. This is something you can’t generally do with an RRSP as you must have available contribution room, based on earned income, to re-contribute amounts withdrawn.

October 1, 2019
Thinking of Buying Your First Home?

Contribute to your RRSP so you can borrow tax-free!

If you’re planning to buy your first home anytime soon, you may be able to take advantage of a helpful federal government program. This enables you to withdraw money you’ve already contributed to your registered retirement savings plan (RRSP) and use it towards anything related to your home purchase, including your down payment, closing costs or real estate fees. The key is that the funds must be in your account at least 90 days before you can withdraw them under the Home Buyers’ Plan (HBP). You can withdraw up to $25,000 ($50,000 per couple) from your RRSPs tax- and interest-free to buy or build a qualifying home for yourself or a related person with a disability.

If you don’t have money set aside for your RRSP, don’t worry, because you can get a loan from your bank in order to make your contributions. You can contribute up to $26,930 or 18% of your annual salary… and, you can also top up going back to the first year of your working career. You may have noticed these details on the bottom of your notice of assessment (NOA) each year.

The only exception to the first-time buyer requirement where you can take advantage of the HBP is if you have a disability or you’re helping a related person with a disability buy or build a home. You must be able to prove that the new home is a better fit for the needs of the disabled person than his/her current home. You’re considered a first-time homebuyer if you didn’t occupy a home that you or your current spouse or common-law partner owned in the past four years.

The HBP requires you to repay all withdrawals to your RRSP within 15 years. You’ll have to repay 1/15^th to your RRSP each year until your HBP balance is zero. If you don’t repay the amount due for a year, it must then be included in your income for that year. Repayments don’t affect your RRSP deduction limit. You can still contribute to your RRSP and designate that amount as a repayment under the HBP, even if your RRSP deduction limit is zero.

February 1, 2019
How to Talk to Your Kids About Money
When is the best time to talk to your kids about money? Right now! Your kids will learn about money from someone. Don’t let it be from an out-of-control celebrity on social media. You have the opportunity to be the positive example in their lives and the guiding voice they can trust. No, money isn’t a taboo subject, and no, your kids don’t need to be sheltered from financial matters. So buckle up and just have the talk already—or go deeper if you’ve only skimmed the surface. If you want to change your family tree, you’ve got to change your mind-set. Here are five tips on how to talk to your kids about money.
1. Start slow.
According to a 2017 T. Rowe Price survey, 69% of parents have some reluctance when it comes to talking about money with their children. And only 23% of kids say they talk with their parents frequently about money. There’s no need to schedule a five-hour lecture presentation to review bank account balances and retirement plan contributions. Start by simply answering your kids’ money questions at an age-appropriate level. You may be surprised at what they already know or what they need to know more about. Once they realize you’re open to these discussions, they may be more comfortable coming to you with money questions.
1. Be honest.
If you regret going into debt or not saving more for college, tell your kids. Parents so rarely have open, honest moments with their children. Kids can handle it—really. Instead of hiding your financial failures or covering it up when money is tight, tell your kids the truth. If you ran up debts in your past and had difficulty paying them back, share that. They’ll appreciate your openness and learn a valuable lesson about overspending.
1. Talk values, not figures.
If you’re hesitant about disclosing your salary and major expenses to your kids, don’t sweat it. The good news is your kids don’t really want (or need) to know that stuff. They need concepts like saving, budgeting, paying down debt, and giving. To help your kids get an idea of what real-world budgeting looks like, encourage them (when age-appropriate) to download a budgeting/money tracking app. They can use the tool to track spending habits and see just how far their money is going. Soon, establishing a budget will feel like second nature. And if they stick with it, they’ll be well ahead of the curve by the time they hit the college campus.
1. Set family goals.
Let your children sit in on and contribute to family budget committee meetings. Just remember you and your spouse are the adults. Only mom and dad make the final decisions. If you are paying off debt or saving for the future, let the kids join in as you celebrate reaching milestones along the way. As you set goals as a family, remind your kids that goals require sacrifice. That might mean skipping a vacation in order to cash-flow a car. But they’ll catch on, especially if they understand these sacrifices will affect their future as well.
1. Learn about money together.
Eventually you’ll touch on topics you may not completely ‘get’ yourself; like tax free savings accounts or RRSP’s. If you don’t feel fully knowledgeable on these topics, that’s okay! Admit you don’t have all the answers and do the research together to find ways of securing your future. It’s a great excuse to spend some time together. So go ahead and open up about the family finances, but keep it simple. Start the conversation, be honest, and teach and lead by example. Someday, your money-smart kids will be proud to follow in your big financial footsteps.

Want more great tips on how to talk to your kids about money? Dave Ramsey and his daughter Rachel Cruze cover this and more in their best seller Smart Money Smart Kids!
March 1, 2018