Monthly Archives: February 2011

Maximize your RRSP today and reap the rewards

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Year after year, many Canadians leave a key financial opportunity on the table by not contributing the maximum allowable amount into their Registered Retirement Savings Plan (RRSP). If your annual income tax assessment includes a notice from the Canada Revenue Agency that details how much unused contribution room you have left in your RRSP from previous years, the time to act is now.
For example, investing $10,000 into an RRSP that offers a 7% return, compounded annually could turn into $76,123 over the span of just 30 years. Plus, investing the full amount creates a larger income tax deduction that could result in a significant tax refund.1
Although it may seem difficult to find the money to contribute into your RRSP every year, we can show you a number of strategies to consider that can help accelerate your plan using assets you have readily available and key tax planning benefits.
Know Your Limits
It’s important to know how much contribution room you have, prior to sitting down with us to discuss your RRSP investment strategy. Each year, the Canada Revenue Agency identifies your unused contribution room for the upcoming tax year on your Notice of Assessment. If however, you are unable to locate your Notice of Assessment, a quick call to the Canada Revenue Agency at 1-800-959-8281 or a visit to www.cra-arc.gc.ca can provide the information you need.
Invest Smart
It may be to your benefit to move money you currently have in savings accounts or other investments into your RRSP sooner, rather than later. Moving these dollars into your RRSP will not only result in a reduction of your annual tax bill – but it also allows you to maximize growth inside your RRSP, without generating immediate taxable income. It’s important to remember that if an investment with an unrealized gain is transferred into a RRSP, the capital gain must be reported in the year of the transfer, but only half of the gain will be included in taxable income.  You will also have to report any interest or dividend income earned up to the time the investment is moved into your RRSP.
Invest Regularly
Consider working your RRSP contribution into your budget by using a monthly investment plan that automatically deducts a specified amount from your savings or chequing account on a regular basis and invests it into funds held inside your RRSP.
Monthly investment plans can be customized to work best for you. We will work with you to help determine the appropriate dollar amount and frequency. We generally recommend you begin by investing at least 10% of your earned income each month. However, it may make sense to invest more, if you have unused contribution room.
Consider the Benefits of Borrowing
In many cases, borrowing for a short period to take greater advantage of RRSP contribution room makes sense. Increasing your RRSP contribution now offers immediate tax savings this year and tax-deferred potential growth for many years to come. 
Financial advisors can help you determine whether a loan fits into your financial plan by looking at the following factors2:
Your age – The impact of compound growth increases depending on the time that money is invested. While borrowing to invest may have more impact at a younger age, we can show you it’s never too late to save for your retirement.
Your ability to repay – We’ll ensure that you don’t borrow more than you should. Together, we will create just the right plan to make sure you can pay off the balance of your loan quickly and then start a regular investment plan to automatically take care of future RRSP contributions. In addition, contributing to an RRSP generates an income tax deduction that could result in a significant tax refund that could be used to help pay down a significant portion of the loan almost immediately.
Your ability to borrow – An RRSP Loan or Line of Credit, like any other use of credit, will increase your Debt Service Ratio (the percentage of your monthly income that goes to pay off debts) and lenders rely on this ratio to determine your loan eligibility. When preparing your plan, we’ll be sure to take your complete financial picture and other borrowing into account.
Financial Advisors can help you determine the best strategy for your personal RRSP investment plan. For more information call 905-216-2445 or click info@vnaccountingsolutions.com or visit www.vnaccountingsolutions.com

Scam email masquerading as CRA making the rounds

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A client of mine received an email last week saying that the CRA (Canada Revenue Agency) had a refund for him, so he should click on a link and submit some information.  In turn, he forwarded the suspicious email to me for my “expert” opinion.
The first question the email cultivated in my mind was, “Doesn’t CRA already has all my information?”  After all, they manage to deposit my measly little refund every May.  But the email looked quite authentic with the CRA logo banner included from their website.  Fortunately, I had come across a warning about this “phishing” scam some time ago.
You can read all about CRA specific “Fraudulent Communications” at http://www.cra-arc.gc.ca/ntcs/bwr-eng.html and here is an excerpt from that page.
The CRA does not do the following:
  • The CRA will not request personal information of any kind from a taxpayer by email.
  • The CRA will not divulge taxpayer information to another person unless formal authorization is provided by the taxpayer.
  • The CRA will not leave any personal information on an answering machine.
  • The CRA will not ask a taxpayer to call back to a long distance number. The number will either be local or toll-free.
Another place to find info on this email scam is at this link:  http://www.hoax-slayer.com/canadian-tax-refund-scam-emails.shtml.
Please always be alert and diligent against these kinds of scams.  You are your best defence. For more information call 905-216-2445 or click info@vnaccountingsolutions.com or visit http://www.vnaccountingsolutions.com/

What is TFSA? (Tax-Free Savings Account)

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In 2009, the Federal Government introduced the Tax-Free Savings Account (TFSA), describing it as “the single most important personal savings vehicle since the introduction of the Registered Retirement Savings Plan (RRSP).”
The TFSA undoubtedly allows you to set money aside in eligible investment vehicles and to watch your savings grow tax-free throughout your lifetime. TFSA savings can be used for any purpose — to purchase a new car, take a vacation, renovate a house or even start a small business. Also, Canadians of all income levels and from all walks of life can reap the benefits.
This summary gives you an idea how the TFSA works:
  • Since 2009, any Canadian resident aged 18 and older can save up to $5,000 every year in a TFSA.
  • Your contributions to a TFSA are not deductible for income tax purposes but the investment income, including capital gains, earned in your TFSA is not taxed, even when withdrawn.
  • Your unused TFSA contribution room is carried forward and accumulates for future years.
  • You can withdraw funds available in your TFSA at any time for any purpose — and the full amount of withdrawals can be put back into your TFSA in future years.
  • Neither income earned in a TFSA, nor withdrawals, affect your eligibility for federal income-tested benefits and credits.
  • You can provide funds to your spouse or common-law partner to invest in their TFSA.
  • TFSA assets can generally be transferred to a spouse or common-law partner upon death.
  • On the breakdown of a marriage or common-law partnership, any amount may be transferred directly from the TFSA of one party to the TFSA of the other.
For more information call 905-216-2445, click info@vnaccountingsolutions.com or visit http://www.vnaccountingsolutions.com/

What is the Small Business Deduction

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How does the small business deduction help business owners in Canada save taxes?
If you are a business owner then it’s very important that you read this article, because I’ll show you how you can utilize the small business deduction to save a lot in taxes.
What is the Small Business Deduction?
The small business deduction is a tax credit available to corporations in Canada on active business income that reduces the general corporate tax rate for corporations from 32% to only 16.5%.
The first $500,000 in profit (that is, revenue minus expenses) is allowable for the small business deduction.
Which types of businesses qualify for the small business deduction?
In order for a business to qualify for the small business deduction it must be a Canadian Controlled Private Corporation (CCPC).  A CCPC has the following characteristics:
·         Incorporated in Canada;
·         More than 50% of the voting share capital of the corporation must be owned by Canadian residents; and
·         Is not listed on a stock exchange.
Types of Income that Qualify
What types of income qualify for the small business deduction in Canada?
The income earned your by your CCPC must be Active Business Income in order to receive the small business deduction in Canada. Active Business Income simply means income earned from a business.  It excludes investment income and capital gains.
How do I Take Advantage of the Small Business Deduction?
Now that you know what types of corporations and income that qualify for the small business deduction in Canada, how do you take advantage of it?
To take advantage of the small business deduction, your accountant must prepare a Corporate Income Tax Return and claim the small business deduction on the return.  For corporations that earn both investment and active business income, a separate calculation must be performed on Federal Schedule 7 of the Corporate Income Tax Return to calculate the small business deduction.
If your corporation has profits in excess of $500,000, then the excess profit will be taxed at a rate of 32%.  Therefore, it’s better for your corporation to declare a bonus payable to you to reduce the profit of your corporation to $500,000.  For the bonus to be tax deductible, it must be paid within 180 days of your corporation’s year end.
For more info call 905-216-2445 or click info@vnaccountingsolutions.com  or visit http://www.vnaccountingsolutions.com/