Personal Finance Quotes

The RRSP is a "must-have" investment for business owners. It provides a way for you to invest in a tax-deferred savings vehicle that can enable a legitimate way to split income with your spouse (through a spousal RRSP) while reducing the taxes you pay today and deferring the tax on your investment earnings to the future. [2020] - Evelyn Jacks

Most businesses must use the accrual method of accounting. Income is reported when "earned" (rather than received), and expenses are deducted as they're "incurred" (rather than actually paid). [2020] - Evelyn Jacks

Corporations must keep their records for 6 years from the end of their fiscal period. However, certain records, like those relating to the acquisition of long-term assets or any records that could affect the sale or wind up of your business must be kept indefinitely. You can request permission to destroy your records earlier than that, using Form T137; however, this may be an invitation for a tax audit first. [2020] - Evelyn Jacks

Corporate returns must be filed within 6 months of the end of the corporation's fiscal year, even if there is no tax payable. This requirement applies to tax-exempt corporations, inactive corporations and non-profit organizations. The only exception is a registered charity; however, this type of corporation must file an information return within 6 months of the end of its fiscal year. [2020] - Evelyn Jacks

The Income Tax Act grants to CRA a number of arbitrary powers. The Minister doesn't have to accept your return as filed. In fact, under Section 152(7), CRA has the right to change your tax return if they don't agree with the way you've filed it. They can change your income figures, your deductions or your credits prior to the expiration of a normal "reassessment period," which is 3 years. If you don't agree with how your tax return has been assessed, you have the right to appeal the results. [2020] - Evelyn Jacks

Personal expenses of any kind are not allowable business expenses. Fines or penalties imposed after March 22, 2004, by any level of government (including foreign governments) will not be tax deductible. Also not allowable is the cost of a golf membership or certain advertising in foreign media. Restricted expenses include the costs of meals and entertainment (50% deductible) and the costs of attending conventions (only two per year). Home workspace expenses are another example, restricted to net income from the business. [2020] - Evelyn Jacks

CRA issued IT-518 to overview their position with regard to the deductibility of food, beverages and entertainment. Reasonable amounts may be deducted if the costs were incurred in the course of earning income from a business or property. The total costs must be restricted to 50% of the amounts actually paid or payable. You can fully deduct the cost of any meals and beverages served or entertainment provided on planes, trains or buses (but not ships, boats or ferries), so keep a log of those expenditures, as receipts are normally not available, and CRA will allow a reasonable amount as your claim. [2020] - Evelyn Jacks

If you're facing an unfavorable reassessment of tax, know your appeal rights and deadlines. Ask your advisors for information about your rights to voluntarily comply with the law on an informal basis, or in more serious cases, through the court system. Be highly pro-active. [2020] - Evelyn Jacks

Ordinary income like employment, pension and interest income will attract higher marginal rates of tax than dividends and capital gains. Your after-tax results also depend on your province of residence. This illustration highlights marginal tax rates on various income sources in the province of British Columbia, the best province in the country in which to earn dividend income. In some provinces, you can earn well in excess of $30,000 in dividends before paying any tax. If you choose to earn dividends only from your small business corporation, you'll miss maximizing the CPP and RRSP contribution room you'll build by taking a salary. [2020] - Evelyn Jacks

The interest paid on money borrowed to in TFSAs, RRSPs, RDSPs and RESPs will not be deductible. Opening a home-based business and claiming home office expenses will make your mortgage interest costs partially deductible, or you can borrow against the equity in the home, place investments in non-registered accounts and then write off the interest on the loan. Discuss these options with your tax advisor. [2020] - Evelyn Jacks

The first $500,000 of active business income earned within a Canadian-Controlled Private Corporation (CCPC) that qualifies for the small business deduction is subject to a lower federal corporate tax rate. However, effective January 1, 2019, companies that have too much of their retained earnings invested inside the corporation will be subject to new passive investment income rules, which will reduce their access to the small business deduction. While this will generally affect larger and more mature businesses, it's a good idea to have your accountant explain these rules to you so you can plan accordingly. [2020] - Evelyn Jacks

In a perfectly integrated system, the amount of total taxes paid by the individual and corporation will be identical to the total taxes paid by the individual alone, regardless of the individual's marginal tax rate. Taxpayers and their advisors must carefully review the salary/ bonus / dividend mix that generates annual taxable income for each family member. For more profitable corporations, it might make sense to reduce taxable corporate income to stay bellow the federal Small Business Deduction (SBD) $500,000 by paying out a year-end bonus, which will be personally taxed as salary. If the corporation earns more than $50,000 in passive investment income, access to the SBD is affected. [2020] - Evelyn Jacks

The dividends you receive will be "grossed-up" for the purposes of personal tax reporting. This has the effect of increasing your net income, the figure on which many tax credits and social benefits payments are calculated. Be sure you have some "what if" calculations done before declaring and paying dividends to make sure you don't inadvertently reduce your Old Age Security or Canada Child Benefits. [2020] - Evelyn Jacks

The Canadian Institute of Actuaries (CIA) confirms the benefits of rebalancing the asset mix on a regular basis (such as once a quarter). Over the long run, this practice can add up to 50 basis points to the annual return. [2020] - Frederick Vettese

Age 65 is the age when (a) you pay less to get into the movie theatre or take public transit, (b) your prescription drugs are paid for by the government, and (c) you can start to receive OAS pension. [2020] - Frederick Vettese

Deferring CPP pension to age 70 forces you to draw down your RRIF assets (or other assets) more quickly before age 70, but those same assets last longer because the CPP pension from age 70 and on is so much bigger. This strategy is only for people with significant savings. For a couple, the threshold is about $400,000. For a single person aged 65 at retirement, it would be about half that. You probably will not want to defer your OAS pension unless your income after 65 is high enough to be subject to the OAS clawback rules. In the case of OAS, the pension at age 70 is only 36% higher than at age 65, not 42%. [2020] - Frederick Vettese

Bond yields more likely stay extremely low for a long time to come, and possibly go even lower I believe that low interest rates are mainly the result of an aging population, not the Great Recession and not COVID-19. Having more people who are over age 50 changes the balance of supply and demand for money, since older people tend to be savers rather than borrowers. Our ratio of older to younger people now is very similar to what it was in Japan 20 years ago. Interest rates there 20 years ago were about the same as ours are today, and their rates have hovered near zero ever sine. [2020] - Frederick Vettese

You should be earmarking about 20% of your tax-sheltered assets for the purchase of an annuity at the point of retirement. Buying an annuity is not as effective a strategy as it used to be now that interest rates are so low. That can change, though. Don't even think about buying an indexed annuity. [2020] - Frederick Vettese

With a regular mortgage, the five-year-term fixed rate is roughly 3% at the moment. The comparable rate for a reverse mortgage (that provides monthly payments) is 5.59%. You must be 55 or older to qualify for a reverse mortgage and you can keep receiving income payments until the total amount owning reaches 55% of the equity in your home. Buying a reverse mortgage is most appropriate for a home owner who has no intention of moving again. It is best not to start a reverse mortgage too early. Wait until age 75 or so but don't wait too long. [2020] - Frederick Vettese

You should try to get your overall investment fee down to about 0.6% a year, if not less. A robo-advisor (also known as an "automated investment advisor") is a firm that establishes and maintains your investment portfolio with minimal human supervision, all based on information that you provide online. One such firm is Wealthsimple. The Big-5 banks are also getting involved, such as RBC with its InvestEase platform. You pay the robo-advisor 0.2-0.5% a year as a management fee. You pay another 0.2% or so to access the advisor's exchange-traded funds (ETFs). [2020] - Frederick Vettese