By Sheryl Smolkin

Prime Minister Harper’s 2015 pre-election budget included several goodies for both people who are saving for retirement and seniors in the deccumulation phase. As you probably know by now, annual TFSA contributions have been increased from from $5,500 to $10,000/year and seniors will be permitted to withdraw money more slowly from their RRIFs so their savings will last longer.

If you are already a senior, you will be happy to know that Rob Carrick at the Globe and Mail characterized seniors as the runaway winners in the Budget. You got more elbow room to manage withdrawals from your RRIFs and a new tax credit to make your homes more accessible. Older Canadians are also major beneficiaries of the new $10,000 annual contribution limit for tax-free savings accounts and there is some financial help for people who look after gravely ill relatives

One of the sources of controversy after the budget was passed is whether it is safe to go ahead and top up your TFSA for 2016 before the budget is actually passed by Parliament. My take was that this is a majority government and there is no way the budget provisions will not become law. Jonathan Chevreau quoted me in Experts: go ahead and make that extra $4,500 TFSA contribution now: I just did.

And  since then Canada Revenue Agency has clarified the timeline of new TFSA limit. In a statement, they said:

“This proposed measure is subject to parliamentary approval. Consistent with its standard practice, the CRA is administering this measure on the basis of the budget announcement. Financial institutions may immediately allow existing and new account holders to contribute up to the proposed maximum.”

In a Maclean’s article, Stop pretending the TFSA expansion won’t be felt until 2080 Kevin Milligan notes that the most important feature of TFSAs is that room accumulates through time, starting at age 18. The annual limit started at $5,000 in 2009, moved to $5,500 in 2013, and the budget has now moved the limit to $10,000 from 2015 forward.

This means that 10 years from now in 2025, every Canadian who is age 34 or older will have full possible contribution room of $141,000. For a couple, that would be $282,000. The net result he believes is that very few people in the future will have any need to pay much tax on investment income as TFSAs will provide almost total coverage of assets.

Finally, Gordon Pape says in his Toronto Star column: RRIF withdrawal changes – it’s about time. His preference would have been for Ottawa to eliminate the minimum withdrawals entirely. After all, everything in an RRIF will eventually be taxed when the plan holder or the surviving spouse dies. The feds will get their share sooner or later — they always do. But he will take what he can get!

We will discuss the RRIF changes in more detail in a future blog on savewithspp.com.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

By Sheryl Smolkin

One of the perks of growing older is that there are some additional tax credits you can take advantage of when you file your income tax return. For example, the pension income tax credit is available to you if you are under age 65, but the amounts that qualify for this tax credit are different, depending on whether you are pre or post age 65.

The federal non-refundable tax credit applies to up to $2,000 of eligible pension income. That means you will get back a maximum of 15% or $300. Provincial tax savings are in addition and can bump up your total savings by an additional $350 to $700 depending on your province of residence.

Since you can transfer up to 50% of pension income to your spouse for tax purposes, a couple can each access this tax credit even if only one of the pair is receiving an eligible pension.

If you are younger than age 65, the only pension income that is eligible for the pension tax credit is either from a superannuation/pension plan, annuity payments from the Saskatchewan Pension Plan or annuity income you are receiving because of the death of your spouse or common-law partner. The income you receive in these circumstances might be in the form of Registered Retirement Income Fund (RRIF), Registered Retirement Plan (RRSP) or Deferred Profit Sharing Plan (DPSP) income, but only if you have been receiving this income since your spouse passed away. 

If you are 65 or older eligible income can be:

• Income from a superannuation or pension plan.
• RPP lifetime benefits.
• RRIF income.
•  DPSP income.
• RRSP annuity income.
• EBP benefits.
• Regular annuities.
• Elected split pension income.
• Variable pension benefits.
• Foreign pension income unless the foreign pension income is tax-free in Canada because of a tax treaty or income from a United States Individual Retirement Account.

For a more detailed list of pension and annuity income eligible for the pension tax credit, check out CRA’s Eligible Pension and Annuity Income (less than 65 years of age) and Eligible Pension and Annuity Income (65 years of age or older) charts.

The following income does not qualify as pension income for the pension income tax credit:

• Old Age Security or Canada Pension Plan benefits
• Quebec Pension Plan benefits
• Death benefits
• Retiring allowances
• RRSP withdrawals other than annuity payments
• Payments from salary deferral arrangements, retirement compensation arrangements, employee benefit plans, or employee trusts.

A recent decision of the Tax Court of Canada in Taylor v. The Queen clarified the meaning of “annuity income from an RRSP.” Sarah Taylor began withdrawing money from an RRSP when her husband died. According to the terms of the RRSP she had total discretion with respect to the timing and the amounts of the withdrawals.

To minimize withdrawal fees, she decided to take funds out only once a year. In 2011 she withdrew funds a second time to make an unusual tax payment. The two payments to her were $12,500 and $6,250. Her accountant argued that once she turned 65 in 2011 these amounts and other similar annual withdrawals should be treated as annuity payments as required by the definition of “pension income” for the purposes of the pension tax credit.

Madame Justice Judith Woods ruled that withdrawals made by Taylor from her RRSP were not annuity payments and did not qualify for the pension tax credit because her financial institution had no obligation to make payments on a recurring basis.

The lesson to be taken from this court case is to be certain you understand the rules with respect to RRIF withdrawals and the pension tax credit.  Some people who do not have eligible pension income at age 65 opt for an interim approach. If you move $12,000 into a RRIF and then withdraw $2,000 a year for six years, these withdrawals will allow you to qualify for the full pension tax credit.

By Sheryl Smolkin

If you are a member of the Saskatchewan Pension Plan you can elect to retire any time between the age of 55 and 71. You can purchase an annuity from the plan which will pay you an income for the rest of your life.

You can also transfer your SPP account into a locked-in retirement account (LIRA) or a prescribed registered retirement investment account (prescribed RRIF). Both options are subject to a transfer fee.

LIRA

The LIRA is a locked-in RRSP. It acts as a holding account so there is no immediate income paid from the account. You direct the investments and funds in this option and funds remain tax sheltered until converted to a life annuity or transferred to a prescribed RRIF. You choose where the funds are invested.

The LIRA is only available until the end of the year in which you turn 71. One advantage of a LIRA is that it allows you to defer purchase of an annuity with all or part of your account balance until rates are more favourable.

Prescribed RRIF

You must be eligible to commence your pension (55 for SPP) to transfer locked-in pension money to a prescribed RRIF. If you are transferring money directly from a pension plan, the earliest age at which your pension can commence is established by the rules of the plan.

You may transfer money from a LIRA at the earlier of age 55 (SPP) or the early retirement age established by the plan where the money originated. Funds in your SPP account or your LIRA at age 71 that have not been used to purchase an annuity must be transferred into a prescribed RRIF.

Unlike an annuity, a prescribed RRIF does not pay you a regular amount every month. However, the Canada Revenue Agency requires you to start withdrawing a minimum amount, beginning in the year after the plan is set up.

The Income Tax Act permits you to use your age or the age of your spouse in determining the minimum withdrawal. This is a one-time decision made with the prescribed RRIF is established. Using the age of the younger person will reduce the minimum required withdrawal.

To determine the minimum annual withdrawal required, multiply the value of your prescribed RRIF as at January 1 by the rate that corresponds to your age:

Table 1: Prescribed RRIF + RRIF minimum Withdrawals

Age at January 1	Rate (%)	Age at January 1	Rate (%)
50	2.50	73	7.59
51	2.56	74	7.71
52	2.63	75	7.85
53	2.70	76	7.99
54	2.78	77	8.15
55	2.86	78	8.33
56	2.94	79	8.53
57	3.03	80	8.75
58	3.13	81	8.99
59	3.23	82	9.27
60	3.33	83	9.58
61	3.45	84	9.93
62	3.57	85	10.33
63	3.70	86	10.79
64	3.85	87	11.33
65	4.00	88	11.96
66	4.17	89	12.71
67	4.35	90	13.62
68	4.55	91	14.73
69	4.76	92	16.12
70	5.00	93	17.92
71	7.38	94 and beyond	20.00
72	7.48
For revised RRIF withdrawal schedule based on 2015 Federal Budget, see Minimum Withdrawal Factors for Registered Retirement Income Funds.

There is no maximum annual withdrawal and you can withdraw all the funds in one lump sum. This is in contrast to other pension benefits jurisdictions such as Ontario and British Columbia where locked-in funds not used to purchase an annuity must be transferred to a Life Income Fund at age 71 that has both minimum (federal) and maximum (provincial) withdrawal rules.

The same LIRA and prescribed RRIF transfer options apply to Saskatchewan residents who are members of any other registered pension plan (DC or defined benefit) where funds are locked in.

RRSP/RRIF transfers

If you have saved in a personal or group registered retirement savings plan (RRSP) your account balance can be transferred into a RRIF (as opposed to a prescribed RRIF) at any time and must be transferred into a RRIF no later than the end of the year you turn 71 if you do not take the balance in cash or purchase an annuity.

The minimum withdrawal rules are the same as those of a prescribed RRIF (see Table 1). However, even in provinces like Ontario and British Columbia where provincial pension standards legislation establishes a maximum amount that can be withdrawn from RRIF-like transfer vehicles for locked in pension funds (LIFs), there is no cap on the annual amount that can be taken out of a RRIF.

Also read: RRIF Rules Need Updating: C.D. Howe

By Sheryl Smolkin

It seems to me that I live and breathe retirement planning every day. I read about retirement planning. I write about retirement planning. And I frequently visit our money online to reassure myself that one of these days my husband and I will actually embark on the retirement we have planned for.

After reading numerous personal finance blogs, books and articles I have concluded that people who have good “financial hygiene” from a young age are the ones that are most likely to be successful over the long haul in saving for retirement.

Therefore, over the next several months in a three part series, I will discuss 30 ways you can grow your retirement savings, from before you start your first job until after you’ve locked your office door for the last time.

1. Invest in yourself: In order to get a well-paying job with future prospects of growth you will need some form of post-secondary education and on the job experience. In addition, you will need to continue enhancing your skills and abilities throughout your life. Jobs for life have become the exception rather than the rule, and you are your own career manager.
2. Develop a financial plan: Regardless of how much money you have to live on and what your personal or family expenses are, you need a budget. Allocate amounts to rent, utilities, food, other recurring expenses, discretionary spending and savings. Then stick to your budget and revise it annually, or more often as required.
3. Decide how much you will need: When retirement is 30 or 40 years away, it is impossible to accurately figure out how much money you will need. However, financial planners typically calculate that most people will need 50% to 70% of their income while working to retire on. You can start with a somewhat arbitrary number when you are young and adjust it as you get closer to retirement age.
4. Calculate how much to save: There are many retirement savings calculators online that will help you calculate how much you have to save to generate the annual income you need to fund your retirement. It is important to select a conservative annual rate of return both before and after retirement and keep in mind that a 65 year old can expect to live an additional 20 years or more.
5. Start saving early: In your 20s and 30s saving for a wedding or a car or a house or your children’s education may be at the top of the list. Nevertheless, the earlier you start saving for retirement, the greater the power of compounding and the smaller the amount you have to save on a regular basis to reach your goal. The Saskatchewan Pension Plan allows you to save up to $2,500 per year between ages 18 and 71.
6. Have an emergency fund: Over your working career, there will be periods in which you are out of work or unexpected expenses arise. Financial planners typically suggest that you have an easily accessible, liquid emergency fund of at least three months’ pay. In this way, your longer-term savings goals will not be permanently derailed if you have temporary setbacks. A Tax Free Savings Account is a great place to invest your money as funds withdrawn in one year can be replaced in the following year without any penalty.
7. Avoid consumer debt: There is good debt and bad debt. An affordable mortgage to buy a family home is good debt. High interest credit card bills are bad debt. Your rule of thumb should be that unless you can pay off your credit card in full each month, don’t use it. Airline points and cash back deals on credit cards are tempting, but if you are on a tight budget spending cash only can help to inhibit over-spending.
8. Forget the Joneses: As your family grows and your income increases, it may be tempting to buy more tech toys, a bigger house or take more expensive vacations. But you don’t have to keep up with the Joneses. If over extending yourself means you go into debt and have to forgo saving for retirement, you could be heading for Freedom 85. And you won’t be satisfied with a modest lifestyle when you do retire.
9. Save at work: If your employer offers a defined contribution pension plan or a group RRSP, chances are that your contributions will be matched up to a certain percentage of income. Enroll as soon as you are eligible to receive this “free money” and contribute enough to get the maximum employer match.
10. Reduce withholding taxes: One of the advantages of contributing to a pension plan or an RRSP is that you get a tax break. However, if you wait to the end of the year to get a refund, you are giving the government an interest-free loan. If you are making regular contributions to a personal or workplace retirement savings program you can file a T1213 Request to Reduce Tax Deductions at Source to CRA.

In Part 2 of this series featured next month, we will discuss 10 more ways you can grow your retirement savings.

Do you have any ideas for saving money? Share your money saving tips with us at http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card. And remember to put a dollar in the retirement savings jar every time you use one of our money-saving ideas.

By Sheryl Smolkin

If you decide to start collecting CPP at age 60 but have to continue paying into the plan because you go back to work, your additional post-retirement contributions can significantly increase the amount of monthly pension you receive even while you are still working.

Since 2012, CPP recipients over age 60 who earn employment income must still contribute to the plan until age 65 and may voluntarily make contributions between ages 65-70 if they are earning an income.

Between age 60 and 70 your contributions will generate additional CPP benefits called post-retirement benefits. You don’t need to apply for these additional benefits. They will automatically be added to your monthly cheque following each year after age 60 you contribute.

A sample calculation prepared by Government Benefits Consultant Doug Runchey who worked for 32 years with Human Resources and Skills Development Canada illustrates how post-retirement contributions can add up.

His example is based on a person who in 2014 at age 60 starts collecting a maximum CPP pension of $702 ($1,038 minus the early retirement reduction of 32.4 per cent).

However in January 2015, this individual decides to go back to work. He subsequently earns the maximum pensionable amount of $52,500 (2014 figures) for the next five years before he stops working completely. Using the 2014 maximum CPP contribution level, between ages 60 and 65 he will be required to contribute $2,425.50 each year to the plan (a total of $12,127.50).

Beginning in 2015 at age 61, his pension will be increased each year by an annual, cumulative post-retirement benefit that adds up to $1,350 by age 65.

As a result, his pension of $702 per month at age 60 will increase in yearly increments to $814 monthly at age 65. Therefore, he will receive approximately $2,490 in CPP post-retirement benefits between age 60 and 65. If he lives for another 20 years until age 85, the post-retirement benefit will put an additional $27,000 in his pocket.

“By accruing additional CPP post-retirement benefits of $1,350 per year between age 60 and 65, the person in this example will earn an 11.13 per cent return on the $12,127 in contributions he made for the period,” Runchey says.

He also says that the notional return on post-retirement CPP contributions by a taxpayer earning the CPP maximum pensionable amount each year who chooses to work and contribute to CPP until age 70 will be even higher.

However, Runchey notes that if this taxpayer was self-employed and required to pay both the annual employer and employee contributions ($4,850) from age 60 to 65, the total return on his five years of post-retirement contributions will be cut in half, to 5.56 per cent.

Post-retirement benefits earned in one year are added to benefits beginning in January of the following year, but eligible contributors may not receive the payment until April or May with a retroactive payment to the beginning of the year.

The amount of CPP post-retirement benefits that you can earn between ages 60 and 70 depends on your earnings and the number of years you continue to work and contribute. A Service Canada PRB Calculator will help you calculate how contributing after you begin receiving CPP benefits but before you stop working will increase your CPP benefits at retirement.

If you are over 65 and want to stop contributing to the CPP, you must complete the CPT30 form and give a copy to your employer. If you are self-employed, you must complete the appropriate section of the CRA CPP contributions on Self-Employment and Other Earnings and file it with your income tax return.

You can change your mind and begin contributing to the CPP again but you are allowed only one change per calendar year.

Also read:
Working and aged 60 or older
Canada Pension Plan Post-Retirement Benefit – Born in 1950
CPP Post Retirement Benefits – DR Pensions Consulting

By Sheryl Smolkin

For the last five years all Canadians over 18 have been eligible to open a “Truly Fantastic Savings Account” (aka a Tax-free Savings Account). These accounts are a particularly valuable retirement savings option for lower-income people who will not be taxed at a reduced rate after retirement and more affluent Canadians who have used up all of their RRSP contribution room. 

You can open a TFSA at age 18 even if you are not earning income, as long as you have a social insurance number. TFSA contributions are not tax-deductible, but investment earnings accumulate tax-free. You can also continue contributing to a TFSA beyond age 71 when RRSP contributions must end.

According to the BMO Annual TFSA Report released in late December, almost half of Canadians (46%) now report having TFSAs – up 23% from 2012. However, one-third of account owners are still not fully familiar with how TFSAs work. As a result, since opening an account, one in 10 people have over-contributed and paid a tax of one percent per month on overpayments.

To avoid a penalty tax, you must understand how much you can contribute each year, the way unused contributions are carried forward and when withdrawals can be replaced.

Starting in 2009, TFSA contribution room accumulates every year even if you do not file an income tax return or open a TFSA. The annual TFSA dollar limit for the years 2009, 2010, 2011 and 2012 was $5,000.The annual TFSA dollar limit for the years 2013 and 2014 is $5,500.

The TFSA dollar limit is indexed based on the inflation rate. The indexed amount will be rounded to the nearest $500.

Investment income earned by and changes in the value of TFSA investments will not affect your TFSA contribution room for the current or future years. For an example, if you earn $1,500 in interest on your 2013 balance, you can still contribute $5,500 in 2014.

The TFSA contribution room is made up of:

• Your TFSA dollar limit ($5,500 per year beginning in 2013 plus indexation, if applicable);
• Any unused TFSA contribution room from the previous year; and
• Any withdrawals made from the TFSA in the previous year.

The mistake that many people make is to withdraw funds and re-contribute them in the same year, after they have made their maximum contribution for the year, thus triggering an overpayment.

For example, assume that at age 18 in 2011. Jane opened a TFSA. At the end of 2012, Jane had contributed $10,000 to her account and had used up all of her 2011 and 2012 contribution room.

• In January 2013 she contributed the maximum amount of $5,500 for the year.
• In March 2013 Jane withdrew $10,000 to buy a new car.
• In September 2014, using her annual bonus, Jane re-contributes $10,000 to her TFSA.

Jane will have a $10,000 over-contribution that will be taxed at 1% per month until the end of 2013. To avoid triggering the tax, she should have waited until the next year (January 2014) to pay back the money she withdrew from her account in 2013.

Your TFSA contribution room information can be found by going to one of the following services:

• My Account;
• Quick Access; or
• Tax Information Phone Service (TIPS).

If the information that CRA has about your TFSA transactions is not complete or if you have made contributions to your TFSA this year, use Form RC343, Worksheet – TFSA contribution room, to calculate your TFSA contribution room for the current year. If CRA has deemed your unused TFSA contribution room to be a specific amount and you believe it is incorrect, instead of using this form, contact CRA for more information.

So keep records about your TFSA transactions to ensure that you do not exceed your TFSA contribution room.  CRA will also keep track of your contribution room and determine the balance of room at a particular time for each eligible individual based on information provided by TFSA issuers.

Also read:

TFSA Infographic

BMO Annual TFSA Report

Misunderstanding this simple TFSA rule could cost you a lot

By Sheryl Smolkin

You just got a job offer and in addition to a hefty salary increase you are getting all kinds of new perks like life insurance, free parking and a cell phone. The company even has a subsidized cafeteria where you buy lunch and pick up dinner- to-go for the family.

But not all employee benefits are created equal. In some cases the value of the benefits is viewed as taxable income by Canada Revenue Agency when you file your tax return.

Here are seven things that may form part of your compensation and how they are taxed by CRA.

1. Group benefits: Amounts your employer pays for your life, accident and critical illness insurance coverage are taxable benefits. But when the company pays all or part of the cost of your extended health care, dental plan, short-term disability (STD) or long-term disability (LTD) insurance you do not pay tax on the premiums. If you collect on your short-term or long-term disability insurance you will pay taxes if any part of the premiums were employer-paid.
2. Pensions/Group RRSPs: Your company’s contributions to your pension plan are not taxable. However, your employer’s contributions to your Group RRSP account are viewed as additional taxable income by CRA. But you can deduct RRSP contributions (up to $23,820 for 2013) so you will not actually have to pay taxes on Group RRSP contributions made by your employer on your behalf.
3. Service and recognition awards: Cash, gift certificates and things like gifts of stock certificates and gold coins are always taxable benefits. However, you can receive tangible tax-free gifts or awards worth up to $500 annually in some specified circumstances, such as a wedding or outstanding service award. In addition, once every five years you can receive a tax-free, non-cash long-service or anniversary award worth $500 or less.
4. Tuition reimbursement: If you get a scholarship or bursary from your employer it will be a taxable benefit unless you took the program to maintain or upgrade your employment skills. For example, if you need an executive MBA to be promoted, no tax is payable on the value of company-paid tuition. Where the company gives your child a scholarship or bursary, generally neither you nor your son or daughter who benefit from the scholarship have to pay taxes on the amount.
5. Parking: Employer-provided parking is usually a taxable employee benefit unless you have a disability or the parking spot is provided because you regularly need to drive a car for work. If you work in a shopping centre or industrial park where parking is free to employees and customers, a taxable benefit will not be added to your remuneration. Similarly, if there are fewer parking spots than the actual number of employees (scramble parking), free parking is not valued or included in taxable income.
6. Mobile phone: Charges paid by the company for the business use of your cellphone are not taxable. If your phone is used in part for personal reasons, that portion of the bill should be reported on your T4 as a taxable benefit. However, if the cost of the basic plan has a reasonable fixed cost and your use does not result in charges over the cost of basic service, CRA will not consider any part of the use taxable.
7. Subsidized meals: If the company cafeteria sells subsidized meals to employees, this will not be considered a taxable benefit as long as employees pay a reasonable amount that covers the cost of food preparation and service.

More details about the taxation of these and other employee benefits or allowances can be found on the CRA website.

Also see:

CRA Benefits and Allowances Chart

Income Tax Treatment of Taxable Benefits

Some workplace benefits come tax-free

By Sheryl Smolkin

Retirement income has to last a long time and stretch to cover the increasing need for care required by disabled or older seniors. That’s why it is important for seniors, their children and their advisors to fully understand and take advantage of available tax exemptions and deductions.

Here are two tax breaks you may not know about.*

1.    Disability tax credit (DTC)

The disability amount is a non-refundable tax credit that a person with a severe and prolonged impairment in physical or mental functions can claim to reduce the amount of income tax he/she has to pay in a year. In 2013 the maximum tax credit for people over 18 is $7,697.

To be eligible for the DTC, The Canada Revenue Agency must approve Form T2201, Disability Tax Credit Certificate. You can apply for the DTC at any time during the year. Retroactive payments may be made if the individual was disabled for several years before applying for the tax credit. Last year we got over $9,000 back for my mother.

If you qualified for the disability amount for 2012 and you still meet the eligibility requirements in 2013, you can claim this amount without sending in a new Form T2201. However, you must send one if the previous period of approval ended before 2013, or if requested to do so by CRA.

You may be able to transfer all or part of your disability amount to your spouse or common-law partner or to another supporting person.

If you received attendant care and you are eligible for the DTC, there are special rules that apply for claiming those expenses. For more information, see Attendant care or care in an establishment.

CRA has an interactive online quiz you can take to find out if you or your family member may qualify for the DTC. Also see Who is eligible for the disability tax credit? for all of the requirements that must be met to qualify for the DTC

2.    GST/HST for homecare expenses 

The goods and services tax (GST) in Saskatchewan (or the harmonized sales tax (HST) in Ontario, Nova Scotia, New Brunswick, and Newfoundland and Labrador) is not payable on publicly subsidized or funded homecare services.**

However, if an individual is not approved for municipal or provincial homecare services, a private agency must charge GST/HST.

Nevertheless, if a government agency approves even a small amount of subsidized homecare services (i.e. 2 hours/week), then ALL public and private homecare services become GST/HST exempt.

That’s why Lorne Lebow, a partner in the accounting firm Stern Cohen LLP recommends that in any situation where an individual requires home care services, an application should be made to the relevant government agency for subsidized or free services before or at the same time a private home care worker is retained.

“Even if a government agency authorizes services for only one or two hours a week, it’s enough to trigger the GST/HST exemption for additional privately-retained home care services. With GST/HST rates ranging from 5% (Saskatchewan) to 15% (Nova Scotia), that can quickly add up,” Lebow says.

He also advises individuals receiving both public and private home care services to inform the agency they are working with and request that invoices do not include GST/HST.

In the event that someone you know has inadvertently paid GST/HST you can apply to the CRA for a rebate going back two years.  Saskatchewan residents must send the completed General Application for rebate of GST/HST CRA (Form 189) three-page form with a letter from the government agency confirming the client is receiving subsidized care plus copies of the original invoices to Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2. 

——

*Also see Guide RC4064, Medical and Disability-Related Information and discuss your family’s situation with your accountant or other financial advisor.

** Effective March 21, 2013 the definition of “homemaker service” in the GST/HST legislation has been expanded to include cleaning, laundering, meal preparation and child care provided to an individual who, due to age, infirmity or disability, requires assistance in his/her home plus  personal care services such as bathing, feeding, and assistance with dressing and taking medication.

Also see:
Tax tips for seniors – getsmarteraboutmoney.ca‎
TaxTips.ca – Saskatchewan Income Tax
TaxTips.ca – Seniors Income Tax and Government Benefits

By Sheryl Smolkin

Later retirement and working longer is the new norm. That’s the message in Sun Life’s 2013 Canadian Unretirement Index report.

Over 3000 adults aged 30 to 65 years of age polled online by Ipsos Reid in late 2012 present a startlingly different picture than five years ago.

The number of Canadians who are planning to exit the workforce by age 66 has declined by nearly half since 2008. Just 27% of survey respondents expect to be retired by that age versus 51% five years ago.

As a result, there is a corresponding increase in the number of Canadians who assume they will be working retirees. And according to the study, we’re not talking about part-time work.

Twenty-six percent now expecting to be working full-time at age 66. This figure represents a 10-percentage point increase since 2008 in the number of Canadians who expect to be punching the clock for a full 40 hours or more a week.

Furthermore, most people say they will be working longer not because they want to, but because they need the money. This is apparent when we examine the order in which Canadians ranked their reasons for working at age 66 in 2008 as compared to 2012.

Reasons for working at age 65

2008	2012
15%: I enjoy my job or career	25%: To earn enough money to pay basic living expenses
14%: To stay mentally active	21%: To earn enough money to live well
13%: To earn enough money to live well	16%: I don’t believe government pension benefits will be enough to live on
13%: I don’t believe government pensionbenefits will  be enough to live on	13%: To stay mentally active
11%: To earn enough money to pay basicliving expenses	10%: I enjoy my job or career

SOURCE: 2013 Sun Life Unretirement Index Report

It is apparent that there is a serious disconnect between retirement dreams and retirement reality for many Canadians. According to the Sun Life study, on average Canadians anticipate needing $46,000 in annual retirement income and they expect to live in retirement for 20 years.

But the average amount they anticipate saving by the time they retire is $385,000 (not including the equity in their house). That’s well below the amount required to meet these average expectations.

In fact 58% of Canadians aim to have less than $250,000 saved for retirement. Thirty-eight percent say they will have less than $100,000 tucked away.

There is no doubt that we all have competing priorities that make it difficult to save for retirement. Paying down debt and raising our children are pretty high on the list. But small steps can make a huge difference.

A good way to start is to pay yourself first. That means arranging for automatic monthly deposits in a registered retirement savings account like the Saskatchewan Pension Plan.

And if you complete and file the Canada Revenue Agency’s T1213 form you can request permission from your employer to deduct a lower amount of taxes at source.

By reducing your withholdings at source, you are paying yourself and not the Canada Revenue Agency first, and increasing your net take home pay. You are effectively giving yourself a raise all year long, not just once at tax time.

In 2013 you can contribute up to $2,500/year to the Saskatchewan Pension Plan and contribution options include directly contributing from your bank account on a pre-authorized contribution schedule. Additional amounts up to your RRSP contribution limit can be contributed to your individual or workplace retirement savings plans.

Developing the “Pay yourself first” habit can help you build up a substantial retirement nest egg. For example, if you deposit $2,500/year in the SPP and earn five percent over a 40 year career (age 25 to 65) you will have a lump sum of about $317,000 in your account.

The value of planning and saving is that you can decide how and when you want to fully retire. Saving with SPP will help you accumulate the funds you need to enjoy your golden years on your own terms.

By Sheryl Smolkin

Have you ever handed your home renovation contractor cash to avoid paying provincial sales tax and GST? Do you accept cash for your in-home daycare services and conveniently “forget” to remit source deductions or claim the income for tax purposes?

If either of these scenarios strikes a chord, chances are you are a participant in the underground economy (UE). A September 2012 Statistics Canada study on the UE in Canada pegs the level of underground activity at $35 billion in 2009.

The UE is any legal business activity that is unreported or under-reported for tax purposes. This can include failing to file returns or omitting an entire business activity, also referred to as “moonlighting” or working “off the books.”

Under-reporting income received, such as “skimming” a portion of business income, bartering, or failing to report a portion of employment income such as tips and gratuities is also included in the UE. The three most significant industry sectors accounting for almost two-thirds of UE activity are construction, retail trade and accommodation/food services.

Why should you care? After all nobody wants any more taxes than they have to.

Well for one thing, paying your taxes is the law. Evading taxes is illegal and can result in criminal convictions leading to fines and jail time in addition to any taxes, interest, and penalties owing.

For example, in December 2012 a Saskatoon man was fined $15,734 for tax evasion for the years 2008 and 2009. He purchased and sold two separate properties for profit and deliberately did not report the income earned from these sources to evade taxes.

In addition, he knowingly failed to report rental income earned from a property, and management fees received from two other renovation projects. The total amount of income found unreported during the years under investigation was $79,195. This resulted in the evasion of federal income tax in the amount of $19,687.

The fine of $15,734 represents 80% of the tax evaded. In addition to the court fines, all outstanding taxes plus penalties and interest must also be paid.

The investigation of tax affairs arose from inconsistencies uncovered during a routine income tax audit which led the CRA to obtain a search warrant and to seize income tax records from the tax evader’s personal residence.

Tax cheating also places an unfair burden on law-abiding businesses and individual taxpayers because overall tax rates must be higher for governments to raise the necessary funds to pay for services.

Businesses that offer lower prices because of their failure to comply with Canada’s tax laws gain an unfair advantage. Tax-cheating employers also gain an unreasonable competitive edge by paying wages under the table in cash, in order to avoid paying the employer portion of employment insurance premiums and Canada Pension Plan contributions. The “knock on effect” is that their employees are eventually deprived of benefits from these important social programs.

Finally, those who avoid paying taxes are taking money that is needed for important investments in schools, hospitals, and other vital government services.  In addition, cash transactions with no written contract or receipt offer no consumer protection and make it difficult for consumers to seek recourse.

Just because you haven’t been caught yet doesn’t mean you won’t be caught in future.

The Canada Revenue Agency has a variety of tools to detect those who do not report all of their income, including on-site visits by officers, information obtained from third-party reporting, leads from other audit files, informants, and indications that taxpayers are living beyond the level of income they report.

If you haven’t declared all of your sales and income in the past, you may be able to correct your information using the CRA’s Voluntary Disclosures Program. If you make a full disclosure before any audit or criminal investigation is started, you may only have to pay the taxes owing plus interest, but not the penalties.

While it may be tempting at times to try and avoid paying some or all of the taxes you, in the long run doing the right thing will actually save you money.

Have you filed your tax return yet? Send us an email to so*********@sa*********.com and your name will be entered in a quarterly draw for a gift card. And remember to put a dollar in the retirement savings jar every time you use one of our money-saving ideas.

If you would like to send us other money saving ideas, here are the themes for the next three weeks:

2-May	Gardening	Cheapest ways to plant a maintenance-free garden
9-May	Mother’s day	Mother’s day gifts for every budget
16-May	Spring cleaning	How spring cleaning can save you money