By Brenda Spiering, Editor, Marketing and Communications Manager, Client Solutions, SunLife Financial
What you can deduct
Deductions from income and tax credits are reported on lines 206 to 485 of your income tax return. So, take some time to review them carefully. There may be steps you can take to maximize the amount you can claim.
For example, you have until March 1 (or a day or two later, if March 1 falls on a weekend) to top up Registered Retirement Savings Plan contributions that can be claimed as a deduction for the previous year. And claiming a tax deduction can often mean getting a refund come tax time.
The same is true of tax credits. Taking some time to pull together all of the required receipts to claim eligible credits can mean significant savings.
What’s the difference between claiming a tax deduction and a tax credit?
Tax deductions reduce the overall amount of tax you have to pay by reducing your annual income. That’s because they’re subtracted directly from your annual earnings.
For example, if you’re a salaried employee, you’ve likely had tax deducted all year from your paycheque based on your estimated annual income. By contributing to an RRSP and effectively reducing your income, you may end up in the position of having paid more tax than necessary and qualify for a refund.
Just remember, says the Million Dollar Journey blog, “If you’re getting a big tax refund at the end of the year, that money was basically an interest-free loan to the government.” A better approach is to make regular RRSP contributions and get your employer to reduce your tax payments at source.
Also, while you get a tax break on your contributions to an RRSP, you will be taxed on your withdrawals. This works well if you expect to be in a lower tax bracket in retirement (or when you draw the money out) than you’re in now. If not, you may want to consider contributing to a Tax-Free Savings Account instead.
Tax credits fall into two categories, non-refundable or refundable:
- Non-refundable tax credits (such as eligible tuition expenses) are applied directly to your tax bill to reduce the amount of tax you owe. They are not paid out directly. You must owe tax in order to claim them.
- Refundable tax credits (such as the federal GST/HST Tax Credit) are government tax refunds. They are paid out automatically, often in a series of payments throughout the year, to anyone who files a tax return who qualifies.
More details on non-refundable and refundable tax credits are available from The Financial Consumer Agency of Canada.
For more information on what you can deduct and where to report tax credits and deductions, visit the Canada Revenue Agency.
Original Source: Are you paying more tax than you need to, By Brenda Spiering, Marketing and Communications Manager, Client Solutions,SunLife Financial
Don’t Put Off Your Decision to Buy Life Insurance
2016 is an opportune year to buy life insurance. New laws affecting the taxation of life insurance come into effect on January 1, 2017. After this date new policies will not perform as well as they do currently.
The good news is that the proceeds of life insurance policies paid at death still remain tax free. What has been affected is the amount of cash value that may accrue in a policy and the tax-free distribution of death proceeds from a life insurance policy owned in a corporation.
How will this impact your existing and future policies?
Adjustment to the Maximum Tax Actuarial Reserve
Whole Life and Universal Life policies are valuable vehicles in which to accumulate cash value. The limit of how much can be invested is governed by the Maximum Tax Actuarial Reserve (MTAR). If the cash value ever exceeds the MTAR limit, the policy is deemed to be “offside” and will be subject to accrual taxation. Read more
The Sandwich Generation was a term coined by Dorothy Miller in 1981 to describe adult children who were “sandwiched” between their aging parents and their own maturing children. There is even a term for those of us who are in our 50’s or 60’s with elderly parents, adult children and grandchildren – the Club Sandwich. More recently, the Boomerang Generation (the estimated 29% of adults ranging in ages 25 to 34, who live with their parents), are adding to the financial pressures as Boomers head into retirement.It is estimated that by 2026, 1 in 5 Canadians will be older than 65. This means fewer adults to both fund and provide for elder care. Today, it is likely that the average married couple will have more living parents than they do children.
What are the challenges? Read more
Available until January 1, 2017
A New Approach
A new method of structuring an insured annuity has restored its favourable results. The new approach involves combining the prescribed annuity with a Universal Life policy.
- The UL policy is funded with a single deposit to provide lifetime coverage.
- The remaining capital is then used to purchase the prescribed life annuity.
- On the death of the insured/annuitant, the annuity income ceases.
- The Universal Life policy now returns the full amount of the capital to the intended beneficiaries.