It's 2021 and Happy New Year! A few things to do in the short run to keep more money in your pocket!
I hope everyone had a Happy New Year and that 2021 is better than 2020! However, you can still do some a few items at this time of year in order to help your 2020 personal taxes out, and start 2021 off in the right direction.
Firstly, RRSP deadline is Monday March 1, 2021. This is the last day you can purchase a RRSP that still count toward for 2020. Thus, you will need to look at your 2019 Notice of Assessment to determine the available RRSP room. You will need to subtract contributions already made since March 2, 2020 to the current date, and then top it up to the maximum allowed when cashflow allows for this. In some situations a RRSP top up loan would be ideal for this contribution if you had a good income year.
Please note that your contribution limit for 2020 was 18% of your 2019 earned income (to a maximum of $27,230) less your 2019 pension adjustment, if any, plus any RRSP room carried forward from prior years.
If you put funds into your RRSP during the year, the claim should be optimized based on your tax bracket. So not all of the RRSP purchases needs to be claimed in the year of purchase and they can be carried forward to increase the tax refunds to claim in a higher income year , as applicable.
Also, ensure to purchase at the minimum for the required repayment of the Home Buyer plan and/or the Life Long Learning repayments. This will save you from having the income inclusion if you don't purchase any RRSPs as repayments.
Well it's 2021, that means that the TFSA (Tax Free Savings Account) room has gone up by $6,000. Thus, all Canadian tax residents can get more funds into the TFSA for this increase. TFSA's are very good and acts as a emergency savings account and the earnings in the plan are not taxed. Yes, in Canada we have something that the earnings grow tax free! This account is more like a long term savings account and should not be used as a daily account. You can buy stocks and options in this account, but no day trading is allowed. However, if you borrow to fund the TFSA then that interest is not deductible as the earnings in the plan are not taxable.
Loan Interest Payments Jan 30, 2021
If you have entered into an income-splitting arrangement with family members by loaning your personal after-tax funds to a spouse or common-law partner, a minor child, or a family trust at the CRA's prescribed rate, you should pay the interest before Jan. 30, 2021. If the interest isn't paid on time, the loan will be subject to the attribution rules and the income earned by the family member who received the loan will be taxed in your hands.
Also, if you received a low-interest loan from your employer during any point in the year, you should ensure that interest is paid before Jan. 30, 2021 in order to avoid a deemed taxable employment benefit. This benefit will also be calculated at the CRA's prescribed rate for the period that the loan was outstanding, less any interest actually paid. The CRA's prescribed rate has been 1% since July 1, 2020.
So a few things to be done in January 2021 that keeps more money in your pocket versus to the tax collectors coffers.
Again, be safe, stay healthy, and have a great 2021!
January 2, 2021
Copyright © 2021 By Peter Wiesner CPA, CA
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