Stay Ahead in 2024: A Comprehensive Checklist for Federal Tax Updates

April 22, 2024/in 2024, Blog, Business Owners, Family, financial advice, Financial Planning, individuals, Investment, Retirees, retirement/by Crossroads Financial Inc.

With the upcoming 2024 Canadian tax rule changes, it’s important to review your financial strategies. We’ve identified the key changes that we expect to influence financial decisions for investors, business owners, incorporated professionals, retirees, and individuals with high income or net worth.

Capital Gains Inclusion Rate

Starting on June 25, 2024, the tax on capital gains is changing. Until now, you would only have to include half of your capital gains in your income for tax purposes. But after that date, you’ll have to include two-thirds of any capital gains over $250,000 on your tax return. This is also the case for employee stock options.

Consequently, for corporations and trusts, they will have to include two-thirds of all their capital gains, no matter the amount. This is a significant change.

Lifetime Capital Gains Exemption (LCGE)

The budget proposes increasing the LCGE for qualified capital gains from $1,016,836 to $1.25 million, effective for sales made after June 24, 2024. This change increases tax benefits for individuals selling certain types of property, such as small business shares or farming and fishing assets.

Alternative Minimum Tax (AMT)
The 2023 budget included updates to the AMT, suggesting revising the charitable donation tax credit for AMT calculations, increasing the claimable amount from 50% to 80%.

Employee Ownership Trust (EOT)

The budget proposes a tax exemption on up to $10 million in capital gains for individuals selling their businesses to an EOT if certain criteria are met.

Canadian Entrepreneurs’ Incentive

This new tax measure offers a reduced inclusion rate of 1/3 for up to $2 million in capital gains during an individual’s lifetime, with this limit being phased in over 10 years. However, it’s important to know that not all businesses qualify—this doesn’t apply to businesses in professional services, finance, real estate, hospitality, arts, entertainment, or personal care.

Below is a checklist to help you navigate the tax adjustments and ensure your financial plans are updated and aligned with the new rules.

Investors

Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate.
Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.
Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.
Employee Stock Options: Adjust the timing of exercising stock options to align with the upcoming changes in inclusion rates.

Business Owners:

Corporate Investments: Assess the impact of increased inclusion rates on corporately held assets, exploring the timing of gains realization. Review trust-held investments.
Lifetime Capital Gains Exemption: Maximize the benefits of the increased LCGE for qualifying business assets.
Employee Ownership Trust: Consider the advantages of transferring business ownership via an EOT.
Succession Planning: Update your succession plans to consider the potential impact of capital gains tax changes.
Entrepreneurs Incentive: Check if you are eligible to reduce capital gains taxes.

Incorporated Professionals:

Investments: Assess both personal and corporate investments for the new inclusion rate. Determine the most tax-effective structure for holding and realizing gains from investments.
Succession Planning: Time the potential sale of your professional corporation to capitalize on the current LCGE.

Retirees:

Estate Planning: Update estate plans considering the impending increase in capital gains rates.
Life Insurance Coverage: Ensure life insurance is adequate to cover increased capital gains tax liabilities upon death.
Non-Registered Investments and Retirement Income: Review your strategy for non-registered investments to manage taxes on gains and adjust your retirement income plans to accommodate the upcoming changes in capital gains rates.

Individuals with High Income or Net Worth:

Investments: Evaluate portfolios to identify where capital gains can be realized under the current lower inclusion rate. Review trust-held investments.
Investment Property: Consider advancing the sale of such properties to benefit from the existing capital gains rate.
Estate Planning: Revise plans to address potential increases in capital gains taxes, ensuring estates are structured for tax efficiency.
Charitable Contributions: Align your charitable giving strategies with the new tax benefits and AMT considerations.

Please reach out to us to review your financial strategy together and ensure it aligns with the upcoming changes.

Tax tips to know before filing your 2023 income tax

April 2, 2024/in 2024, Blog, corporate, Family, financial advice, Financial Planning, tax/by Crossroads Financial Inc.

This year’s tax deadline is April 30, 2024. It’s important to make sure you’re claiming all the credits and deductions you’re eligible for. We’ve separated this article into 2 sections:

What’s new for 2023
Individuals and Families

What’s New for 2023

Advanced Canada Workers Benefit (ACWB)

Automatic advance payments of the Canada Workers Benefit (CWB) are now seamlessly distributed through the ACWB program to individuals who received the benefit in the last tax year. However, it’s important to note that not everyone who received the CWB in the previous tax year will automatically receive the ACWB payments. Only individuals who filed their 2022 tax return before November 1, 2023, are eligible for the ACWB payments.

Furthermore, it’s worth mentioning that the ACWB program eliminates the need to file Form RC201. Recipients are no longer required to fill out this form. Instead, starting in 2023, individuals should report the amounts from their RC210 slip on Schedule 6, Canada Workers Benefit, of their tax return. Additionally, for eligible spouses, the option to claim the basic amount for the CWB is available regardless of who received the RC210 slip.

Deduction for Tools (Tradespersons and Apprentice Mechanics)

Starting in 2023, the maximum employment deduction for eligible tools of tradespersons has risen from $500 to $1,000. Consequently, the threshold for expenses eligible for the apprentice mechanics tools deduction has also been adjusted.

Temporary Flat Rate Method for Home Office Expenses

For the year 2023, the temporary flat rate method for claiming home office expenses is not applicable. Consequently, taxpayers seeking to claim such expenses for 2023 must utilize the detailed method and obtain a completed Form T2200, Declaration of Conditions of Employment, from their employer.

Federal, Provincial, and Territorial COVID-19 repayments

Repayments of COVID-19 benefits at the federal, provincial, and territorial levels, made after December 31, 2022, can be deducted and claimed.

First Home Savings Account (FHSA)

The FHSA is a registered plan designed to aid individuals in saving for their first home. Starting April 1, 2023, contributions made to an FHSA are typically deductible, and eligible withdrawals made from an FHSA for purchasing a qualifying home are tax-free.

Property Flipping

Starting January 1, 2023, any profit generated from the sale of a housing unit (including rental properties) situated in Canada, or a right to acquire a housing unit in Canada, that you owned or held for less than 365 consecutive days prior to its sale is considered business income rather than a capital gain. This is applicable unless the property was already classified as inventory or the sale occurred due to, or in anticipation of specific life events.

Multigenerational Home Renovation Tax Credit (MHRTC)

The MHRTC is a refundable tax credit designed to enable eligible individuals to seek reimbursement for specific renovation expenses incurred in establishing a secondary unit within an eligible dwelling. This enables a qualifying individual to live with their qualifying relative. If eligible, you can claim up to $50,000 in qualifying expenditures for each renovation project completed, with a maximum credit of $7,500 for each eligible claim.

Fuel Charge Proceeds Return to Farmers Tax Credit

The Fuel Charge Proceeds Return to Farmers Tax Credit is now accessible to self-employed farmers and individuals involved in a partnership operating a farming business with one or more permanent establishments located in Alberta, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island, or Saskatchewan. If eligible, you may be entitled to a refund of a portion of your fuel charge proceeds.

For Individuals and Families

Canada Training Credit (CTC)

The CTC is a refundable tax credit available to help Canadians with the cost of eligible training fees.

To qualify for the CTC, you need to fill out Schedule 11 for the following:

Tuition fees and other applicable fees paid to an eligible educational institution in Canada for courses taken in 2023.
Fees paid to specific organizations for occupational, trade, or professional examinations undertaken in 2023.

To be eligible for the CTC, you must meet all these conditions:

You resided in Canada for the entire year of 2023.
You were at least 26 years old but less than 66 years old at the end of the year.
Your most recent notice of assessment or reassessment for 2022 shows a Canada Training Credit Limit for 2023.

Canada Caregiver Credit (CCC)

The CCC is a non-refundable tax credit aimed at assisting individuals who provide support to a spouse, common-law partner, or dependent with a physical or mental impairment, as outlined by the CRA.

You might be eligible for the CCC if you aid:

Your spouse or common-law partner dealing with a physical or mental impairment.
Dependents such as children, grandchildren, parents, grandparents, siblings, uncles, aunts, nieces, or nephews residing in Canada, who rely on you for consistent provision of basic needs like food, shelter, and clothing.

The amount you can claim varies depending on your relationship to the individual, your circumstances, their net income, and whether other credits are claimed for them.

Child Care Expenses

Child care expenses encompass payments made by you or someone else to arrange care for an eligible child. This care allows you to participate in income-earning activities, pursue education, or conduct research funded by a grant.

If you qualify, you can claim certain childcare expenses as deductions when you file your personal income tax return.

Disability Tax Credit (DTC)

The DTC is a non-refundable tax credit designed to support individuals with disabilities, or their family members who provide support, by reducing their income tax responsibilities.

To be eligible for this credit, individuals must have a significant and enduring impairment. Once approved, they can apply the credit when filing their taxes.

The DTC aims to ease some of the extra costs linked with the disability by lessening the individual’s income tax burden.

Moving

You can claim moving expenses you paid during the year if you meet these conditions

You moved to a new residence for work reasons, to start a business in a different area, or to attend a post-secondary program as a full-time student at a university, college, or other educational institution.
Your new residence must be at least 40 kilometres closer, determined by the shortest public route, to your new work location or educational institution.

Interest Paid on Student Loans

You might qualify to claim an amount for the interest paid on your student loan for post-secondary education if it was obtained under the following acts:

Canada Student Loans Act
Canada Student Financial Assistance Act
Apprentice Loans Act
Provincial or territorial government laws that are similar to the aforementioned acts.

Only you, or a person related to you, can claim the interest paid on the loan within the tax year 2023 or the preceding 5 years.

Donations and Gifts

When you or your spouse/common-law partner donate to eligible institutions, you might be eligible for federal and provincial/territorial non-refundable tax credits when you file your income tax and benefit return.

Normally, you can claim a portion or the full eligible donation amount, capped at 75% of your net income for the tax year.

Seeking guidance?

Wondering if you qualify for valuable tax credits or deductions? Reach out to us – as your financial advisor, we’re here to assist you in optimizing your finances and maximizing your savings.

Source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/whats-new.html

Canada Training Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-45350-canada-training-credit.html

Canada Caregiver Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/canada-caregiver-amount.html

Child Care Expense: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21400-child-care-expenses.html

Disability Tax Credit: https://www.canada.ca/en/revenue-agency/services/tax/individuals/segments/tax-credits-deductions-persons-disabilities/disability-tax-credit.html

Moving: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-21900-moving-expenses.html

Interest Paid on Student Loans: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-31900-interest-paid-on-your-student-loans.html

Donations and Gifts: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-34900-donations-gifts.html

Empowering Your Family’s Financial Future: A Comprehensive Guide to Budgeting

April 1, 2024/in Blog, Debt, disability, disability insurance, Family, financial advice, Financial Planning, individuals, Insurance, rdsp/by Crossroads Financial Inc.

Taking charge of your family’s financial well-being through effective budgeting is a crucial step in securing a brighter future. We’ll explore the significance of budgeting and provide practical tips to help you manage your money wisely while ensuring the best possible support for your loved ones, including those with disabilities and their Registered Disability Savings Plan (RDSP).

Why Budgeting Matters for Families

Budgeting is a powerful financial tool that holds importance for all families:

Financial Clarity: It offers a clear overview of your family’s income and expenses, helping you make informed decisions about allocating funds.
Goal Achievement: Budgeting helps you allocate funds not only for your loved one’s RDSP but also for other family financial goals, such as saving for education or a home.
Expense Control: It identifies areas where you can cut back on expenses, freeing up money for your family’s financial priorities.
Debt Reduction: By tracking spending, you can allocate extra funds to pay down debt faster, ensuring your family’s financial stability.
Emergency Preparedness: A budget provides a financial safety net for unexpected expenses, which can be especially critical for families with additional financial responsibilities.

Steps to Effective Budgeting for Families

Calculate Income: Determine your total monthly income, including salaries, government benefits, and any disability-related support for your loved one.
List Expenses: Categorize expenses into fixed (e.g., housing, utilities) and variable (e.g., groceries, entertainment).
Set Financial Goals: Define short-term and long-term financial goals for your family, ensuring that your loved one’s RDSP contributions are part of the plan.
Create a Budget: Use budgeting tools or apps to allocate income to expenses, savings, and financial goals without exceeding your income.
Monitor and Adjust: Regularly track spending against your budget, making necessary adjustments to ensure your family’s financial health.

Tips for Successful Budgeting

Be Realistic: Set achievable goals and create a budget that accommodates your family’s unique needs, including the financial responsibilities associated with the RDSP.
Prioritize Savings: Ensure that contributing to your loved one’s RDSP is a top financial priority, but don’t forget to save for other family goals too.
Emergency Fund: Maintain an emergency fund to cover unexpected expenses, which can benefit all family members.
Review and Cut Expenses: Periodically review expenses to find areas where you can save and allocate more funds to your family’s financial priorities.
Pay Yourself First: Treat savings, including RDSP contributions, as non-negotiable expenses, just like other essential bills.
Seek Professional Advice: Consult a financial advisor who specializes in disability-related financial planning for tailored guidance.

Budgeting is your family’s pathway to financial security and ensuring a brighter financial future. By budgeting wisely and prioritizing your loved one’s financial well-being, you can control your family’s finances, reduce stress, and work towards a future filled with financial peace of mind. Remember, financial success for families means making informed choices that align with your values and aspirations. Start budgeting today to achieve financial wellness for your entire family, balancing the needs of all family members, including those who rely on the support of the RDSP.

TFSA vs RRSP – 2024

February 1, 2024/in 2024, Blog, Business Owners, Estate Planning, Family, financial advice, Financial Planning, individuals, Investment, personal finances, Professionals, retirement, rrsp, Tax Free Savings Account/by Crossroads Financial Inc.

Tax-Free Savings Account vs Registered Retirement Savings Plan

When looking to save money in a tax-efficient manner, Tax-Free Savings Accounts (TFSA) and Registered Retirement Savings Plans (RRSP) can offer significant tax benefits. To assist you in understanding the distinctions, we will compare the following:

The differences in deposits between TFSAs and RRSPs
The differences in withdrawals between TFSAs and RRSPs

TFSA versus RRSP – Difference in deposits

When comparing deposit differences between TFSAs and RRSPs, there are several key considerations:

The amount of contribution room available
The ability to carry forward unused contributions
The tax deductibility of contributions
The tax treatment of growth in the account

How much contribution room do I have?

If you have never contributed to a TFSA, you can contribute up to $95,000 today. This table outlines the contribution amount you are allowed each year since TFSAs were created, including this year:

Regarding RRSPs, the limit for tax deductions is 18% of your pre-tax earned income from the previous year, with a maximum limit of $31,560. To illustrate, if your pre-tax income in 2023 was $60,000, your deduction limit for 2024 would be $10,800 (18% x $60,000). If your pre-tax income was $200,000, the maximum limit of $31,560 would apply.

How much contribution room can I carry forward?

Suppose you opt not to contribute to your TFSA each year or do not contribute the maximum amount. In that case, you can carry forward your unused contribution room indefinitely, provided you are a Canadian resident, over 18 years of age, and have a valid social insurance number. If you make a withdrawal, the amount withdrawn will be added to your annual contribution room for the next calendar year.

In contrast, for an RRSP, you can carry forward your unused contribution room until age 71. Once you reach 71, you are required to convert your RRSP into an RRIF. Withdrawals from an RRSP do not create additional contribution room.

The tax deductibility of contributions

Your TFSA contributions are not tax-deductible and are made with after-tax dollars.

Your RRSP contributions are tax-deductible and made with pre-tax dollars.

Tax Treatment of Growth

It is essential to contribute to both RRSP and TFSA because of the different tax treatment of the growth within them.

A TFSA is ideal for short-term goals, such as saving for a down payment on a house or a vacation, as its growth is entirely tax-free. When withdrawing from your TFSA, you will not have to pay any income tax on the amount withdrawn. On the other hand, the growth within an RRSP is tax-deferred. This means you will not pay taxes on your RRSP gains until age 71, at which point you convert the RRSP into an RRIF and start withdrawing money.

RRSPs are more suitable for long-term goals such as retirement because, in retirement, you will have a lower income and be in a lower tax bracket, resulting in less tax on your RRIF income.

TFSA versus RRSP – Differences in withdrawals

There are several areas to focus on when comparing differences in withdrawal:

Conversion Requirements
Tax Treatment
Government Benefits
Contribution Room

Conversion Requirements

For a TFSA, there are never any conversion requirements as there is no maximum age for a TFSA.

For an RRSP, you must convert it to a Registered Retirement Income Fund (RRIF) if you turn 71 by December 31st, 2024.

Tax Treatment of Withdrawals

One of the most attractive things about a TFSA is that all your withdrawals are tax-free! Therefore, they are recommended for short-term goals; you don’t have to worry about taxes when you take money out to pay for a house or a dream vacation.

With an RRSP, if you make a withdrawal, it will be taxed as income except in two cases:

The Home Buyers Plan lets you withdraw up to $35,000 tax-free, but you must pay it back within fifteen years.
The Lifelong Learning Plan lets you withdraw up to $20,000 ($10,000 maximum per year) tax-free, but you must pay it back within ten years.

How will my government benefits be impacted?

If you are withdrawing from your TFSA or RRSP, it’s essential to know how that will affect any benefits you receive from the government.

Since TFSA withdrawals are not considered taxable income, they will not impact your eligibility for income-tested government benefits.

RRSP withdrawals are considered taxable income and can affect the following:

Income-tested tax credits such as Canada Child Tax Benefit, the Working Income Tax Benefit, the Goods and Services Tax Credit, and the Age Credit.
Government benefits including Old Age Security, Guaranteed Income Supplement and Employment Insurance.

How will a withdrawal impact my contribution room?

If you withdraw from your TFSA, the amount you withdrew will be added on top of your annual contribution room for the following calendar year. If you withdraw from your RRSP, you do not open any additional contribution room.

The Takeaway

RRSPs and TFSAs can both be great savings vehicles. However, there are significant differences between them which can affect your finances. If you need help navigating these differences, please do not hesitate to contact us. We’re here to help.

2024 Financial Calendar

January 1, 2024/in 2024, Blog, Business Owners, financial advice, Financial Planning, individuals, personal finances, Professional Corporations, Professionals, Retirees, tax/by Crossroads Financial Inc.

2024 Financial Calendar

Welcome to our 2024 financial calendar! This calendar is designed to help you keep track of important financial dates and deadlines, such as tax filing and government benefit distribution. You can bookmark this page for easy reference or add these dates to your personal calendar to ensure you don’t miss any important financial obligations.

If you need help with your taxes, tax packages will be available starting February 2024. Don’t wait until the last minute to get started on your tax return – make an appointment with your accountant to ensure you’re ready to go when tax season arrives.

Important 2024 Dates to Know

On January 1, 2024 the contribution room for your Tax Free Savings Account opens again. The maximum contribution for 2024 is $7,000.

If you qualify, on January 1, 2024 the contribution room for your First Home Savings Account opens. The maximum contribution for 2024 is $8,000.

For your Registered Retirement Savings Plan contributions to be eligible for the 2023 tax year, you must make them by February 29, 2024.

GST/HST credit payments will be issued on:

January 5
April 5
July 5
October 4

Canada Child Benefit payments will be issued on the following dates:

January 19
February 20
March 20
April 19
May 17
June 20
July 19
August 20
September 20
October 18
November 20
December 13

The government will issue Canada Pension Plan and Old Age Security payments on the following dates:

January 29
February 27
March 26
April 26
May 29
June 26
July 29
August 28
September 25
October 29
November 27
December 20

The Bank of Canada will make interest rate announcements on:

January 24
March 6
April 10
June 5
July 24
September 4
October 23
December 11

April 30, 2024 is the last day to file your personal income taxes, and tax payments are due by this date. This is also the filing deadline for final returns if death occurred between January 1 and October 31, 2023.

May 1 to June 30, 2024 would be the filing deadline for final tax returns if death occurred between November 1 and December 31, 2023. The due date for the final return is six months after the date of death.

The tax deadline for all self-employment returns is June 17, 2024. Payments are due April 30, 2024.

The final Tax-Free Savings Account, First Home Savings Account, Registered Education Savings Plan and Registered Disability Savings Plan contributions deadline is December 31.

December 31 is also the deadline for 2024 charitable contributions.

December 31 is also the deadline for individuals who turned 71 in 2024 to finish contributing to their RRSPs and convert them into RRIFs.

Please reach out if you have any questions.

Sources:

https://www.canada.ca/en/services/benefits/calendar.html

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/important-dates-rrsp-rrif-rdsp.html

https://www.bankofcanada.ca/2023/07/2024-schedule-policy-interest-rate-announcements-major-publications/

Understanding Target Loss Ratio and Your Group Benefits Plan

October 3, 2023/in Blog, Business Owners, financial advice, Financial Planning, Group Benefits, health benefits/by Crossroads Financial Inc.

Group benefits can be intricate both in their establishment and administration. There are numerous details and considerations to be aware of when purchasing a group benefits plan, one of which is the target loss ratio (TLR).

Key Questions Addressed:

What is a target loss ratio?
How does my TLR influence my premiums upon policy renewal?
What steps should I take if I have concerns regarding my TLR?

Understanding Target Loss Ratio (TLR):
Here are the primary aspects you should understand about the target loss ratio (TLR):

It represents the expected profit point of your employee benefit plan’s comprehensive health and dental benefits.
TLR is the maximum dollar amount of claims paid by the insurance company, expressed as a percentage of your premium. For instance, if an insurance company pays $40 in claims for every $80 collected in premiums, the loss ratio stands at 50%.
The TLR is primarily determined by two factors: the number of members participating in the employee benefit plan and the annual premium paid.
The loss ratios can vary based on the type of insurance. For instance, the loss ratio for property insurance is typically lower than that for health insurance.

Does my TLR Affect My Premiums Upon Renewal?
Generally, your TLR won’t have a significant influence on your premiums when renewing. However, a notable increase or decrease in the number of staff members participating in your group benefits plan might cause some impact.

Other factors influencing your renewal premiums include:

A substantial amount of health and dental claims made.
Changes in the general demographics of your employees, such as aging.
An increase in the cost of services covered by your group benefits plan.
General inflation.

Addressing Concerns About TLR:
As someone overseeing a group benefits plan, your objective is to ensure optimal value for your premium expenditure.

If you’ve been collaborating with the same insurance provider for an extended period, it’s beneficial to explore other available options. Comparing offerings can help ascertain if the rate and TLR you’re being offered align with current market standards.

It’s essential to consider how varying TLRs might influence the long-term viability of your group benefits plan. If you’re keen on gaining deeper insights, consider reaching out to industry experts or consultants for guidance.

Understanding Registered Education Savings Plans (RESPs) in Canada

September 1, 2023/in 2023, Blog, Family, financial advice, Financial Planning, Registered Education Savings Plan/by Crossroads Financial Inc.

What is an RESP?

A Registered Education Savings Plan (RESP) is a unique savings account available in Canada, designed to assist individuals, such as parents or guardians, in saving for a child’s post-secondary education. Notably, anyone can open an RESP for a child. There are two main types of RESPs: single and family plans. Single plans cater to one beneficiary who doesn’t necessarily have to be related to the contributor. In contrast, family plans can cater to multiple beneficiaries, who must be related to the contributor by blood or adoption. This special account type offers significant tax benefits and is structured explicitly to fund a child’s future educational needs.

What are the eligibility requirements to open an RESP?

Opening an RESP requires both the contributor and the beneficiary (the child for whom you’re saving) to be Canadian residents with a valid Social Insurance Number (SIN). The plan can be opened for up to 35 years, and the RESP has a lifetime contribution limit of $50,000. To qualify for the Canada Education Savings Grant (CESG), the beneficiary must be aged 17 or under.

How can my child access their RESP funds for school?

The beneficiary can start withdrawing funds from the RESP as Educational Assistance Payments (EAPs) once they enrol in an eligible post-secondary educational program. EAPs comprise the income earned in the RESP and any government grants. The original contributions made to the RESP can be withdrawn tax-free by the contributor or given to the beneficiary. Given the student’s income level and personal tax credits, they typically remain tax-free.

What are the benefits of an RESP?

RESPs offer numerous benefits. Key among them is tax-deferred growth, which means the investment income generated within the account isn’t taxed as long as it remains in the plan. Also, through programs like the CESG and the Canada Learning Bond (CLB), the Canadian government contributes to your RESP, thereby enhancing your savings. Lastly, RESPs provide a structured path to save for a child’s future education, encouraging consistent savings and financial planning.

How does the Canadian Education Savings Grant work?

The CESG is a government grant that matches a portion of your annual RESP contributions. The standard matching rate is 20% on the first $2,500 contributed each year, leading to a maximum annual grant of $500. However, low-income families may qualify for a higher matching rate. Unused CESG contribution room can be carried forward, allowing for a potential maximum grant payment of $1,000 in a single year. The CESG is available until the beneficiary turns 17, with a lifetime limit of $7,200 per beneficiary.

What is the Canada Learning Bond?

The Canada Learning Bond (CLB) is another program to promote long-term savings for a child’s post-secondary education. It targets children born after 2003 from low-income families. Eligible families receive an initial $500 from the government, directly deposited into the child’s RESP. An additional $100 is added annually until the child turns 15, for a potential total of $2,000. The CLB does not require any contributions to the RESP, making it accessible even for those in a tight financial position.

What are the BCTESG and QESI?

Provincial programs such as the British Columbia Training and Education Savings Grant (BCTESG) and the Quebec Education Savings Incentive (QESI) provide additional incentives for education savings. The BCTESG offers a one-time grant of $1,200 for eligible children, and the QESI provides a refundable tax credit paid directly into an RESP for qualifying Quebec residents.

How do I open an RESP?

Opening an RESP can be done through a financial advisor. You need to provide your SIN and the SIN of the beneficiary. Understanding the terms, conditions, and potential fees linked with the RESP offered by your chosen institution is crucial. You can make regular contributions or contribute lump sums as you see fit. Inquiring about the types of investments available within the RESP is vital, as they can significantly impact the growth of your savings.

In conclusion, while RESPs offer a structured and tax-efficient way of saving for a child’s post-secondary education, they also require careful planning and consistent contributions. Be sure to understand all aspects of an RESP and consider contacting us before starting one.

LET’S TALK

Federal Budget 2021 Highlights

April 22, 2021/in 2021, Blog, Coronavirus, Coronavirus - Associates, Coronavirus - Practice Owners, Coronavirus - Students, corporate, Debt, Family, financial advice, Financial Planning, incorporated professionals, individuals, personal finances, Professional Corporations, tax/by Crossroads Financial Inc.

On April 19, 2021, the Federal Government released their 2021 budget. We have broken down the highlights of the financial measures in this budget into three different sections:

Business Owners
Personal Tax Changes
Supplementary Highlights

Business Owners

Extending Covid -19 Emergency Business Supports

All of the following COVID-19 Emergency Business Supports will be extended from June 5, 2021, to September 25, 2021, with the subsidy rates gradually decreasing:

Canada Emergency Wage Subsidy (CEWS) – The maximum wage subsidy is currently 75%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Canada Emergency Rent Subsidy (CERS) – The maximum rent subsidy is currently 65%. It will decrease down to 60% for July, 40% for August, and 20% for September.
Lockdown Support Program – The Lockdown Support Program rate of 25% will be extended from June 4, 2021, to September 25, 2021.

Only organizations with a decline in revenues of more than 10% will be eligible for these programs as of July 4, 2021. The budget also includes legislation to give the federal government authority to extend these programs to November 20, 2021, should either the economy or the public health situation make it necessary.

Canada Recovery Hiring Program

The federal budget introduced a new program called the Canada Recovery Hiring Program. The goal of this program is to help qualifying employers offset costs taken on as they reopen. An eligible employer can claim either the CEWS or the new subsidy, but not both.

The proposed subsidy will be available from June 6, 2021, to November 20, 2021, with a subsidy of 50% available from June to August. The Canada Recovery Hiring Program subsidy will decrease down to 40% for September, 30% for October, and 20% for November.

Interest Deductibility Limits

The federal budget for 2021 introduces new interest deductibility limits. This rule limits the amount of net interest expense that a corporation can deduct when determining its taxable income. The amount will be limited to a fixed ratio of its earnings before interest, taxes, depreciation, and amortization (sometimes referred to as EBITDA).

The fixed ratio will apply to both existing and new borrowings and will be phased in at 40% as of January 1, 2023, and 30% for January 1, 2024.

Support for small and medium-size business innovation

The federal budget also includes 4 billion dollars to help small and medium-sized businesses innovate by digitizing and taking advantage of e-commerce opportunities. Also, the budget provides additional funding for venture capital start-ups via the Venture Capital Catalyst Program and research that will support up to 2,500 innovative small and medium-sized firms.

Personal Tax Changes

Tax treatment and Repayment of Covid-19 Benefit Amounts

The federal budget includes information on both the tax treatment and repayment of the following COVID-19 benefits:

Canada Emergency Response Benefits or Employment Insurance Emergency Response Benefits
Canada Emergency Student Benefits
Canada Recovery Benefits, Canada Recovery Sickness Benefits, and Canada Recovery Caregiving Benefits

Individuals who must repay a COVID-19 benefit amount can claim a deduction for that repayment in the year they received the benefit (by requesting an adjustment to their tax return), not the year they repaid it. Anyone considered a non-resident for income tax purposes will have their COVID-19 benefits included in their taxable income.

Disability Tax Credit

Eligibility changes have been made to the Disability Tax Credit. The criteria have been modified to increase the list of mental functions considered necessary for everyday life, expand the list of what can be considered when calculating time spent on therapy, and reduce the requirement that therapy is administered at least three times each week to two times a week (with the 14 hours per week requirement remaining the same).

Old Age Security

The budget enhances Old Age Security (OAS) benefits for recipients who will be 75 or older as of June 2022. A one-time, lump-sum payment of $500 will be sent out to qualifying pensioners in August 2021, with a 10% increase to ongoing OAS payments starting on July 1, 2022.

Waiving Canada Student Loan Interest

The budget also notes that the government plans to introduce legislation that will extend waiving of any interest accrued on either Canada Student Loans or Canada Apprentice Loans until March 31, 2023.

Support for Workforce Transition

Support to help Canadians transition to growing industries was also included in the budget. The support is as follows:

$250 million over three years to Innovation, Science and Economic Development Canada to help workers upskill and redeploy to growing industries.
$298 million over three years for the Skills for Success Program to provide training in skills for the knowledge economy.
$960 million over three years for the Sectoral Workforce Solutions Program to help design and deliver training relevant to the needs of small and medium businesses.

Supplementary Highlights

Federal Minimum Wage

The federal budget also introduces a proposed federal minimum wage of $15 per hour that would rise with inflation.

New Housing Rebate

The GST New Housing Rebate conditions will be changed. Previously, if two or more individuals were buying a house together, all of them must be acquiring the home as their primary residence (or that of a relation) to qualify for the GST New Housing Rebate. Now, the GST New Housing Rebate will be available as long as one of the purchasers (or a relation of theirs) acquires the home as their primary place of residence. This will apply to all agreements of purchase and sale entered into after April 19, 2021.

Unproductive use of Canadian Housing by Foreign Non-Resident Owners

A new tax was introduced in the budget on unproductive use of Canadian housing by non-resident foreign owners. This tax will be a 1% tax on the value of non-resident, non-Canadian owned residential real estate considered vacant or underused. This tax will be levied annually starting in 2022.

All residential property owners in Canada (other than Canadian citizens or permanent residents of Canada) must also file an annual declaration for the prior calendar year with the CRA for each Canadian residential property they own, starting in 2023. Filing the annual declaration may qualify owners to claim an exemption from the tax on their property if they can prove the property is leased to qualified tenants for a minimum period in a calendar year.

Excise Duty on Vaping and Tobacco

The budget also includes a new proposal on excise duties on vaping products and tobacco. The proposed framework would consist of:

A single flat rate duty on every 10 millilitres of vaping liquid as of 2022
An increase in tobacco excise duties by $4 per carton of 200 cigarettes and increases to the excise duty rates for other tobacco products such as tobacco sticks and cigars as of April 20, 2021.

Luxury Goods Tax

Finally, the federal budget proposed introducing a tax on certain luxury goods for personal use as of January 1, 2022.

For luxury cars and personal aircraft, the new tax is equal to the lesser of 10% of the vehicle’s total value or the aircraft, or 20% of the value above $100,000.
For boats over $250,000, the new tax is equal to the lesser of 10% of the full value of the boat or 20% of the value above $250,000.

If you have any questions or concerns about how the new federal budget may impact you, call us – we’d be happy to help you!