Thursday, March 19, 2009

2008 RRIF minimums and 25% re-contributions

Do you know anyone who is taking money out of their RRSP or RRIF? If so please forward the following to them. If they want to re-contribute, they must do so before April 14, 2009

2008 RRIF minimums and 25% re-contributions
On November 27, 2008, the Federal government proposed legislative changes to the calculation of the 2008 required minimum withdrawal for RRIF, LIF and other locked-in RRIF plans (collectively known as a “RRIF”). The change allows the annuitant to re-contribute up to 25% of the 2008 minimum amount back to their RRIF (or to an RRSP if the annuitant is 71 years of age or younger at the end of the year in which the contribution is made) provided the RRIF annuitant received the full minimum amount in 2008.

Bill C-10 received Royal Assent on March 12, 2009 and the legislation implementing the Budget measures is now law.

This means that policyholders have until April 14, 2009 to re-contribute up to 25% of their 2008 RRIF minimum.

How to submit re-contributions
Contact your financial planner or institution and let them know that you would like to take advantage of this offer.

Tax receipts
• A 2008 RRIF re-contribution “receipt” (or RRSP receipt if applicable) will be issued to the annuitant
• To ensure that a 2008 RRIF re-contribution “receipt” (or RRSP receipt if applicable) is issued,
clients must indicate on the letter of direction/financial service form that they are making a recontribution.

More information on the legislative changes can be found on the CRA’s website:

Monday, March 9, 2009

Be Tax Efficient

Medical Expenses

Most people are unfamiliar with the many medical expenses that can be claimed beyond dental bills, prescription drugs and living aids, such as prescription glasses and wheel chairs. You are able to include any medical expenses not paid for by a provincial or private plan. In fact, even if you have private coverage, the premiums you pay are eligible medical expenses.

Canada Pension Plan (CPP)

If you are retiring early, it’s generally better to begin taking your CPP as soon as you are eligible (i.e. age 60) versus waiting until age 65. The extra five years between age 60 and 65 when you haven’t made CPP contributions may mean that you won’t receive the full amount even if you do wait. Because you will receive benefits, even though reduced, for an extra 60 months, you could be in your 80’s before you start to reap the benefits of waiting.

Focus on Family

Some tax credits can be claimed by either spouse. Medical expenses and charitable donations are two examples. Generally, it is almost always better for the spouse with the lower net income (provided he/she is in a taxable position) to claim medical expenses because the credit reduces by a percentage of net income. The credit for charitable donations is a two-tiered federal credit of 15 per cent (2008) on the first $200 and 29 per cent on the balance (plus provincial credits). Spouses are allowed to claim the other’s donations and to carry forward donations for up to five years. By carrying forward donations and then having them all claimed by one spouse, the first $200 threshold with the lower credit is only applied once.

Optimize Holdings Inside and Outside Your RRSP for Tax Efficiency
Consider tax efficiency as one factor when deciding which investments to put inside your RRSP and which to keep outside. Consider putting funds inside your RRSP that generate interest, or have a history of large taxable distributions. Keep funds outside your RRSP that you expect will pay relatively fewer taxable distributions or that generate more dividend and capital gains returns.

Salaries to Family Members

One effective income-splitting technique for individuals with a business is to pay family members a salary or wages for any services they provided in the year. The services must have genuinely been provided and the salary or wages must be reasonable. A family member could also be a director for a corporation and receive reasonable director’s fees. This also generates RRSP contribution room for your family members.

Tax tips for business owners

1. Take advantage of income splitting by employing your spouse or children. Remember, though, that family members must actually do the work, and their salaries must be reasonable.
2. If you pay salaries to family members, those people may become eligible for Canada or Quebec Pension Plans (CPP/QPP) and RRSP contributions. Talk to your tax advisor for more details.
3. If you have a home office, you might be surprised at the variety of expenses you can deduct at tax time. They include the business portions of your rent, mortgage interest, property taxes, utilities, home insurance, repairs, maintenance and even landscaping. Have a separate phone line installed for your business to maintain accurate records for deductions.
4. If your business incurs non-capital losses and you’re not incorporated, you can save taxes by applying the losses against any other income source reported on your tax return for the year.
5. With some restrictions, you can deduct the costs of attending two professional conventions each year as long as they’re related to your business.
6. Employee benefit plans may be a business expense. Check with your accountant to see if you are eligible.

For further information on any of these points, give me a call at 416-806-5478